Fresh Del Monte Produce (FDP) - 2021 Q4 - Annual Report

Part I Business Fresh Del Monte is a global, vertically integrated producer and distributor of fresh and prepared food products, primarily under the Del Monte® brand, operating in three segments with North America as its largest market - The company is a leading vertically integrated producer, marketer, and distributor of fresh and fresh-cut fruit and vegetables, with products marketed worldwide under the Del Monte® brand[11] - Business is organized into three reportable segments: Fresh and value-added products, Banana, and Other products and services[13][14][15] Net Sales by Product Category (2019-2021) | Product Category | 2021 Net Sales ($M) | 2021 % of Total | 2020 Net Sales ($M) | 2020 % of Total | 2019 Net Sales ($M) | 2019 % of Total | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Fresh and value-added products | $2,504.8 | 59% | $2,484.1 | 59% | $2,704.4 | 60% | | Pineapples | $534.4 | 13% | $458.9 | 11% | $454.8 | 10% | | Fresh-cut fruit | $493.5 | 12% | $464.8 | 11% | $524.4 | 12% | | Fresh-cut vegetables | $366.3 | 9% | $378.9 | 9% | $455.9 | 10% | | Avocados | $320.2 | 7% | $327.1 | 7% | $375.7 | 9% | | Prepared foods | $281.2 | 6% | $278.3 | 7% | $284.6 | 6% | | Other categories | $528.2 | 12% | $570.2 | 14% | $601.1 | 13% | | Banana | $1,581.1 | 37% | $1,602.6 | 38% | $1,656.0 | 37% | | Other products and services | $166.1 | 4% | $115.6 | 3% | $128.6 | 3% | | Total | $4,252.0 | 100% | $4,202.3 | 100% | $4,489.0 | 100% | - In 2021, 43% of fresh produce sold was grown on company-controlled farms, with the remaining 57% sourced from independent growers, and Costa Rica representing 32% of total fresh product sales volume[22] - North America is the largest market, accounting for 60% of net sales in 2021, followed by Europe (16%), Asia (12%), and the Middle East (10%)[16][55][58] - The company's top 10 customers accounted for approximately 30% of net sales in 2021, with Walmart being the largest single customer at 7% of total net sales[54] Risk Factors The company faces numerous risks, including the ongoing impact of the COVID-19 pandemic, significant inflationary pressures, reliance on key suppliers and customers, currency volatility, crop diseases, adverse weather, product contamination, international regulations, and cybersecurity threats - The COVID-19 pandemic has adversely affected business through supply chain disruptions, volatile demand, inventory write-downs, and increased logistical costs, with these effects expected to continue[107][108][109] - Profit margins are volatile due to fluctuating market prices and rising costs for fuel, labor, fertilizers, and packaging, with material inflation in 2021 adversely affecting margins despite late-year price increases[116][117] - The company is dependent on key suppliers, with one grower in the Philippines supplying approximately 12% of banana net sales[114] - Banana Fusarium Wilt Tropical Race 4 (TR4), a serious crop disease, has been detected in Southeast Asia and remains a significant concern, incurring $2.2 million in prevention and control costs in 2021[175][176] - Operations are subject to currency exchange risks, as nearly 34% of sales in 2021 were in foreign currencies, where a weaker U.S. dollar increases production costs abroad and a stronger dollar negatively affects converted sales proceeds[123] - The company is involved in tax disputes in two foreign jurisdictions regarding transfer pricing, with proposed income tax deficiencies aggregating approximately $144.8 million (including interest and penalties) for tax years 2012-2016, which the company strongly contests[172] - Adverse weather and natural disasters, such as the 2020 hurricanes in Guatemala and 2021 rainstorms in Chile, can destroy crops and disrupt operations, leading to significant inventory write-offs and property damage[179][182] Unresolved Staff Comments There are no unresolved staff comments - None[212] Properties As of 2021, the company owns or leases significant plantation acreage for production in Costa Rica, the Philippines, Guatemala, Kenya, and other countries, alongside 27 distribution centers and various international processing facilities Acres Under Production by Location (2021) | Location | Owned Acres | Leased Acres | Principal Products | | :--- | :--- | :--- | :--- | | Costa Rica | 45,865 | 5,503 | Bananas, Pineapples, Melons | | Philippines | — | 15,611 | Bananas, Pineapples | | Guatemala | 8,475 | 5,589 | Bananas, Melons | | Kenya | — | 8,009 | Pineapples | | Chile | 3,036 | 1,729 | Non-Tropical Fruit | | Panama | — | 2,399 | Bananas | | Brazil | 1,820 | — | Bananas, Other Crops | | United States | 550 | — | Melons and Other Crops | - The company operates 27 distribution centers in the U.S. and Canada, 15 of which are also fresh-cut facilities, and owns 11 of these centers[214] - Key international properties include a pineapple cannery in Kenya, a juice processing plant in Costa Rica, and integrated poultry operations in Jordan[217][219][220] Legal Proceedings The company is involved in an ongoing environmental cleanup at the Kunia Well Site in Hawaii, with an estimated remaining cost of $12.9 million, and is vigorously contesting proposed income tax deficiencies of approximately $144.8 million from two foreign jurisdictions related to transfer pricing for tax years 2012-2016 - The company is addressing environmental contamination at the Kunia Well Site in Hawaii under a consent decree with the EPA, with an accrued cleanup cost of $12.9 million as of December 31, 2021[150][223][667] - Tax authorities in two foreign jurisdictions have issued income tax deficiencies related to transfer pricing for tax years 2012-2016, totaling approximately $144.8 million including interest and penalties, which the company strongly disagrees with and is appealing in judicial court[224][225][226] Mine Safety Disclosures This item is not applicable to the company - Not applicable[227] Part II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Fresh Del Monte's ordinary shares trade on the New York Stock Exchange under the symbol FDP, with $0.50 per share paid in cash dividends in 2021, and a performance graph showing underperformance against relevant indices over five years - The company's Ordinary Shares are traded on the New York Stock Exchange under the symbol FDP[230] - In 2021, the Board of Directors declared and paid cash dividends totaling $0.50 per share ($0.10 in Q1/Q2, $0.15 in Q3/Q4)[231] Five-Year Stock Performance Comparison | | 12/30/2016 | 12/31/2021 | | :--- | :--- | :--- | | Fresh Del Monte Produce Inc. | $100.00 | $48.33 | | S&P Smallcap 600 | $100.00 | $179.58 | | S&P 600 Food Products | $100.00 | $98.80 | Reserved This item is reserved - None Management's Discussion and Analysis of Financial Condition and Results of Operations In fiscal 2021, Fresh Del Monte's net sales increased by 1% to $4.25 billion, while gross profit grew 21% to $303.8 million, driven by improved demand and higher pricing that helped offset significant inflationary pressures, with the Optimization Program generating $57.0 million in cash proceeds and operating cash flow decreasing to $128.5 million due to higher inventory Consolidated Financial Highlights (2019-2021) | Metric | 2021 ($M) | 2020 ($M) | 2019 ($M) | | :--- | :--- | :--- | :--- | | Net sales | 4,252.0 | 4,202.3 | 4,489.0 | | Gross profit | 303.8 | 250.9 | 306.4 | | Operating income | 111.0 | 76.5 | 114.1 | - Fiscal year 2021 had 52 weeks, while fiscal year 2020 had 53 weeks, with the extra week in 2020 contributing an estimated $72.0 million in net sales and $2.6 million in gross profit[241][269][273] - The recovery from the COVID-19 pandemic led to significant inflationary pressures in 2021, increasing costs for packaging, fertilizer, labor, fuel, and freight, with price increases implemented in late Q4 2021 to mitigate these impacts[245] - The company's Optimization Program, initiated in 2020 to sell non-strategic assets, has generated $57.0 million in cash proceeds as of December 31, 2021[248] Cash Flow Summary (2019-2021) | Cash Flow Activity | 2021 ($M) | 2020 ($M) | 2019 ($M) | | :--- | :--- | :--- | :--- | | Net cash provided by operating activities | 128.5 | 180.6 | 169.1 | | Net cash used in investing activities | (82.5) | (108.8) | (52.2) | | Net cash used in financing activities | (53.2) | (85.8) | (108.9) | - Capital expenditures in 2021 were $98.5 million, down from $150.0 million in 2020, with a significant portion of spending in both years related to six new fuel-efficient refrigerated container ships, the last two of which were received in 2021[296][302] Quantitative and Qualitative Disclosures About Market Risk The company is primarily exposed to market risks from fluctuations in foreign currency exchange rates and interest rates, with approximately 34% of 2021 net sales in foreign currencies, and uses derivative financial instruments to hedge a portion of these risks - The company is exposed to significant exchange rate risk, with approximately 34% of net sales in 2021 denominated in foreign currencies[357] - A hypothetical 10% strengthening of the U.S. dollar in 2021 would have resulted in an estimated decrease in net sales of $145.0 million[359] - The company is exposed to interest rate risk on its variable rate debt, which totaled $519.1 million at the end of 2021, where a 10% increase in interest rates would have negatively impacted 2021 results by approximately $0.7 million[361] - To mitigate risks, the company uses derivative financial instruments, including foreign exchange forward contracts and interest rate swaps, with the fair value of foreign currency hedges being a net liability of $13.7 million and interest rate swaps a net liability of $29.4 million as of December 31, 2021[358][362] Financial Statements and Supplementary Data This section contains the company's audited consolidated financial statements for the fiscal year ended December 31, 2021, and the unqualified reports from Ernst & Young LLP on both the financial statements and the effectiveness of internal control over financial reporting - The independent auditor, Ernst & Young LLP, issued an unqualified opinion on the consolidated financial statements, stating they present fairly, in all material respects, the financial position and results of operations in conformity with U.S. GAAP[389] - The auditor also issued an unqualified opinion on the effectiveness of the company's internal control over financial reporting as of December 31, 2021, based on the COSO framework[381][390] Key Balance Sheet Data (As of Year-End) | Account | Dec 31, 2021 ($M) | Jan 1, 2021 ($M) | | :--- | :--- | :--- | | Total Current Assets | 1,096.4 | 1,012.3 | | Total Assets | 3,398.1 | 3,263.3 | | Total Current Liabilities | 629.2 | 554.8 | | Long-term debt and finance leases | 527.7 | 541.8 | | Total Liabilities | 1,524.6 | 1,463.4 | | Total Shareholders' Equity | 1,824.0 | 1,749.7 | Key Income Statement Data (Fiscal Year) | Account | 2021 ($M) | 2020 ($M) | | :--- | :--- | :--- | | Net sales | 4,252.0 | 4,202.3 | | Gross profit | 303.8 | 250.9 | | Operating income | 111.0 | 76.5 | | Net income | 79.9 | 46.3 | | Diluted EPS | $1.68 | $1.03 | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure There were no changes in or disagreements with accountants on accounting and financial disclosure - None[742] Controls and Procedures Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of December 31, 2021, a conclusion affirmed by Ernst & Young LLP's unqualified opinion on internal control over financial reporting - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of December 31, 2021[743] - Management assessed internal control over financial reporting based on the COSO framework and determined it was effective as of December 31, 2021[745] - The effectiveness of internal control over financial reporting was audited by Ernst & Young LLP, which issued an unqualified opinion[747] Other Information There is no other information to report - None[748] Disclosure Regarding Foreign Jurisdictions that Prevent Inspections This item is not applicable - Not applicable[749] Part III Directors, Executive Officers, Corporate Governance, Compensation, and Principal Accountant Fees Information required for Items 10 through 14, covering directors, executive officers, corporate governance, executive compensation, security ownership, related transactions, director independence, and principal accountant fees and services, is incorporated by reference from the company's definitive Proxy Statement for the 2022 Annual General Meeting of Shareholders - Information regarding Directors, Executive Officers, and Corporate Governance will be included in the 2022 Annual General Meeting Proxy Statement and is incorporated by reference[752] - Details on Executive Compensation are incorporated by reference from the 2022 Proxy Statement[754] - Security ownership information for beneficial owners and management is incorporated by reference from the 2022 Proxy Statement[755] - Information on certain relationships, related transactions, and director independence is incorporated by reference from the 2022 Proxy Statement[756] - Principal accountant fees and services are incorporated by reference from the 2022 Proxy Statement[757] Part IV Exhibits and Financial Statement Schedules This section lists the financial statements, supplemental schedules, and exhibits filed as part of the Form 10-K report, with consolidated financial statements and Schedule II included in Item 8, and a comprehensive list of exhibits provided, many incorporated by reference - This section contains the index of financial statements, schedules, and exhibits filed with the annual report[762] Form 10-K Summary This item is not applicable - Not applicable[785]