Fresh Del Monte Produce (FDP) - 2023 Q4 - Annual Report

PART I Item 1. Business Fresh Del Monte is a global, vertically integrated producer and marketer of fresh and prepared foods, operating in three segments with North America as its largest market - Fresh Del Monte Produce Inc. is a leading vertically integrated producer, marketer, and distributor of high-quality fresh and fresh-cut fruit and vegetables, and prepared foods, juices, beverages, and snacks, primarily under the Del Monte® brand[12] - The Company's business is comprised of three reportable segments: Fresh and value-added products, Banana, and Other products and services[14][16] 2023 Net Sales by Region | Region | Net Sales % | | :----- | :---------- | | North America | 60% | | Europe | 19% | | Middle East (incl. North Africa) | 9% | | Asia | 10% | | Other | 2% | - The Company sources 49% of its fresh produce from company-controlled farms and 51% from independent producers, with Costa Rica being the most significant sourcing location (36% of total sales volume and property, plant, and equipment)[19] - Fresh-cut produce sales represented 20% of total net sales in 2023, with North America accounting for 71% of fresh-cut fruit sales and 83% of fresh-cut vegetable sales[20] - Pineapple net sales represented 14% of total net sales in 2023, with 74% of fresh pineapples produced on company-controlled farms due to high capital investment and agricultural expertise required[26][28] - Banana net sales represented 38% of total net sales in 2023, with 47% of the volume sold produced on company-controlled farms[34][35] - The Company's third-party freight and logistic services, rebranded as "Network Shipping," leverage supply chain assets and contribute meaningfully to profitability[39] - The Del Monte® brand has been used for over 125 years and is recognized globally for quality, freshness, and reliability[46] - One customer, Walmart, Inc., accounted for approximately 9% of total net sales in 2023, with the top 10 customers accounting for approximately 31%[47] - The Company's workforce consists of approximately 6,402 full-time salaried employees, 25,485 full-time hourly employees, and over 7,000 seasonal hourly employees as of December 29, 2023[78] Item 1A. Risk Factors The company faces diverse risks from market conditions, operations, regulations, agriculture, cybersecurity, and financing - The Company faces continued inflationary pressures on raw materials, packaging, labor, energy, fuel, and transportation costs, which may not be fully offset by price increases, potentially impacting profitability and sales volume[91][92][93] - The global fresh produce industry is highly competitive, with profitability affected by price, product quality, brand recognition, and supply/demand imbalances, particularly for volatile products like bananas and pineapples[95][96] - Consolidation of retailers, wholesalers, and distributors in the food industry can exert downward pricing pressure and lead to increased costs for the Company[97] - The Company is exposed to significant currency exchange risks, as nearly 34% of net sales and a substantial portion of costs are denominated in foreign currencies, which can negatively affect operating results[98][279] - Loss of major customers (Walmart accounted for 9% of 2023 net sales) or reductions in their purchases could negatively impact sales and profits[99][580] - Shortages of qualified labor, increases in wage and benefit costs, and labor disruptions could adversely affect financial results and profitability[100][101][102] - The Company is dependent on key suppliers, with one grower in the Philippines supplying approximately 13% of banana net sales in 2023, posing a risk if relationships terminate[103] - Agricultural operations are vulnerable to crop diseases (e.g., Banana Fusarium Wilt Tropical Race 4 - TR4), insect infestations, adverse weather, natural disasters, and water scarcity, which can lead to substantial losses and increased costs[136][137][138][143] - The Company relies on information systems, and cybersecurity breaches (like the incident in early 2023) could disrupt operations, lead to data loss, reputational damage, and significant costs[147][149][150] - Indebtedness and variable interest rates pose financial risks, with increases in interest rates potentially increasing debt servicing costs and impacting cash flows[156][159] - Members of the Abu-Ghazaleh family, including the Chairman and CEO, directly owned 28.6% of outstanding Ordinary Shares as of February 16, 2024, allowing them to significantly influence shareholder matters[160] Item 1B. Unresolved Staff Comments The Company reported no unresolved staff comments from the Securities and Exchange Commission - There are no unresolved staff comments[165] Item 1C. Cybersecurity The Board oversees cybersecurity risk management, grounded in the NIST Framework, covering threat identification, mitigation, and incident response - The Board of Directors oversees the Company's cybersecurity plan and risks, delegating monitoring to the Governance Committee[166][171] - The Company's cybersecurity approach is based on the NIST Cybersecurity Framework v1.1, focusing on identification, protection, detection, response, recovery, third-party risk management, and employee education[167][169][174] - A cybersecurity incident in early 2023 impacted operational and IT systems, but critical data and business systems were recovered promptly, with no material impact on financial results expected[149][173] Item 2. Properties Fresh Del Monte owns or leases global plantations and operates numerous facilities, including distribution and fresh-cut centers, with Costa Rica as a key location Plantation Acreage Under Production (End of 2023) | Location | Acres Owned | Acres Leased | Products | | :--------- | :---------- | :----------- | :------- | | Costa Rica | 45,996 | 5,007 | Bananas, Pineapples, Melons | | Philippines | — | 17,622 | Bananas, Pineapples | | Guatemala | 8,446 | 5,805 | Bananas, Melons | | Kenya | — | 11,362 | Pineapples | | Chile | 2,073 | 1,366 | Non-Tropical Fruit | | Panama | — | 1,025 | Bananas | | Brazil | 2,282 | 2,083 | Bananas, Other Crops | | United States | 600 | — | Melons | - The Company operates 27 distribution centers in North America (15 with fresh-cut facilities), 4 port facilities, and an avocado packing facility in Mexico[176] - Key facilities include a fresh-cut fruit facility in England, a prepared fruit/tomato production facility in Greece, and distribution/fresh-cut facilities in Japan, South Korea, UAE, and Saudi Arabia[177][178][183] - In Jordan, the Company owns a vertically integrated poultry business and a hydroponic greenhouse with a fresh-cut processing center[183] Item 3. Legal Proceedings The Company is contesting $165.4 million in income tax deficiencies for 2012-2016 in two foreign jurisdictions, related to transfer pricing, with ongoing appeals - The Company is contesting income tax deficiencies of approximately $165.4 million (including interest and penalties) for tax years 2012-2016 in two foreign jurisdictions, related to transfer pricing[185][457] - Legal proceedings are ongoing in both administrative and judicial courts, with injunctions granted to stay collection efforts in one jurisdiction, secured by real estate collateral of $7.0 million and $28.5 million fair market value[186][458] - Management strongly disagrees with the proposed adjustments and plans to exhaust all administrative and judicial remedies[187][459] Item 4. Mine Safety Disclosures The Company states that Item 4, Mine Safety Disclosures, is not applicable to its operations - Item 4. Mine Safety Disclosures is not applicable to the Company[188] PART II Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Fresh Del Monte's Ordinary Shares trade on the NYSE (FDP); the company declared $0.75 per share in dividends for 2023 and completed a $11.8 million share repurchase - Ordinary Shares are traded on the New York Stock Exchange under the symbol "FDP"[4] - As of February 16, 2024, there were 47,629,018 ordinary shares issued and outstanding, with 381 shareholders of record[7][189] Dividends Declared Per Ordinary Share | Year | Q1 | Q2 | Q3 | Q4 | Total | | :--- | :-- | :-- | :-- | :-- | :---- | | 2023 | $0.15 | $0.20 | $0.20 | $0.20 | $0.75 | | 2022 | $0.15 | $0.15 | $0.15 | $0.15 | $0.60 | | 2021 | - | - | - | - | $0.50 | - On November 2, 2023, the Board approved a Share Repurchase Plan to purchase up to 500,000 Ordinary Shares, which was completed in Q4 2023 for $11.8 million[191] Cumulative Five-Year Total Return (12/28/2018 to 12/29/2023) | Index | 12/28/2018 | 12/27/2019 | 1/1/2021 | 12/31/2021 | 12/30/2022 | 12/29/2023 | | :---------------------- | :--------- | :--------- | :------- | :--------- | :--------- | :--------- | | Fresh Del Monte Produce Inc. | 100.00 | 125.18 | 86.88 | 101.24 | 98.22 | 101.25 | | S&P Smallcap 600 | 100.00 | 122.78 | 136.64 | 173.29 | 145.39 | 168.73 | | S&P 600 Food Products | 100.00 | 116.36 | 114.12 | 126.04 | 121.94 | 133.07 | Item 6. Reserved Item 6 is reserved and contains no information Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations The MD&A reviews 2023 financial results, noting decreased net sales, increased gross profit, lower operating income due to impairment, and liquidity from operations - Net sales for 2023 decreased to $4,320.7 million from $4,442.3 million in 2022, primarily due to lower sales volumes and negative exchange rate fluctuations, partially offset by higher per unit selling prices[216] - Gross profit for 2023 increased by 3% to $350.7 million from $340.2 million in 2022, driven by higher selling prices in fresh and value-added products and lower distribution costs, despite higher per unit production costs due to exchange rates[217] - Operating income decreased by $97.8 million in 2023 to $58.5 million, mainly due to $143.4 million in asset impairment and other charges, including $109.6 million for fresh and value-added assets and $21.6 million for prepared foods goodwill[221][222] Net Cash Flow Summary (USD millions) | Category | 2023 | 2022 | 2021 | | :-------------------------------- | :----- | :----- | :----- | | Net cash provided by operating activities | $177.9 | $61.8 | $128.5 | | Net cash provided by (used in) investing activities | $56.4 | $(49.1) | $(82.5) | | Net cash used in financing activities | $(213.5) | $(12.0) | $(53.2) | | Cash and cash equivalents, ending | $33.8 | $17.2 | $16.1 | - Net cash provided by operating activities increased by $116.1 million to $177.9 million in 2023, primarily due to a reduction in inventories[237] - Net cash provided by investing activities was $56.4 million in 2023, driven by $119.9 million from asset sales (including two distribution centers in Saudi Arabia and a plastics business subsidiary), partially offset by $57.7 million in capital expenditures[239] - Net cash used in financing activities was $213.5 million in 2023, primarily for net payments on long-term debt ($139.8 million), dividends paid ($35.9 million), and share repurchases ($11.8 million)[245] - Capital expenditures for 2024 are projected to be approximately $76 million, focusing on North America production facilities, pineapple and banana operations in Central America, and fresh-cut/prepared foods in Africa[244] - The Company's Revolving Credit Facility was amended in February 2024, extending maturity to February 21, 2029, and reducing the limit to $750 million[250] - The Company utilizes foreign currency forward contracts and interest rate swaps to hedge against market risks, with a net liability of $0.3 million for foreign currency hedges and a net asset of $7.9 million for interest rate swaps as of December 29, 2023[254][255] Item 7A. Quantitative and Qualitative Disclosures About Market Risk The Company faces market risks from currency exchange rates and variable interest rates, mitigated by derivatives, with potential impacts on net sales and operating results - The Company is exposed to market risk from changes in currency exchange rates and interest rates, which are managed through operating activities and derivative financial instruments[277][278] - Approximately 34% of net sales and a significant portion of costs in 2023 were denominated in non-U.S. currencies, making the Company vulnerable to exchange rate fluctuations[279] - A hypothetical 10% strengthening of the U.S. dollar would have decreased net sales by approximately $146.0 million in 2023[281] - A hypothetical 10% increase in the interest rate for variable rate debt would have resulted in a negative impact of approximately $2.8 million on operating results for 2023[283] - As of December 29, 2023, the notional value of interest rate contracts outstanding was $400 million, with maturities in 2024 and 2028[285][553] Special Note Regarding Forward-Looking Statements This section notes the report contains forward-looking statements subject to various risks, including market conditions and cybersecurity, which the Company does not undertake to update - The report contains forward-looking statements concerning expectations, beliefs, projections, plans, and strategies[287] - These statements are subject to risks and uncertainties, including inflationary pressures, competition, foreign currency fluctuations, supply chain disruptions, crop diseases, and cybersecurity attacks[290][291][292] - The Company does not undertake to update or revise forward-looking statements as more information becomes available or to reflect changes in expectations, assumptions, or results, except as required by law[294] Item 8. Financial Statements and Supplementary Data This section presents consolidated financial statements with an unqualified audit opinion from Ernst & Young LLP, highlighting critical audit matters like goodwill and asset impairment - Ernst & Young LLP issued an unqualified opinion on the Company's consolidated financial statements for the period ended December 29, 2023[312] - Ernst & Young LLP also expressed an unqualified opinion on the effectiveness of the Company's internal control over financial reporting as of December 29, 2023[302][313] - Critical audit matters include the valuation of goodwill and indefinite-lived intangible assets ($433.5 million at December 29, 2023) and the impairment of long-lived assets, both requiring significant judgment in assumptions like cash flows and discount rates[318][319][321] Consolidated Balance Sheet Highlights (USD millions) | Item | Dec 29, 2023 | Dec 30, 2022 | | :----------------------------------- | :----------- | :----------- | | Total current assets | $1,144.3 | $1,241.4 | | Total assets | $3,184.1 | $3,458.9 | | Total current liabilities | $540.6 | $607.0 | | Total liabilities | $1,271.4 | $1,483.9 | | Total shareholders' equity | $1,912.7 | $1,925.6 | Consolidated Statements of Operations Highlights (USD millions) | Item | 2023 | 2022 | 2021 | | :------------------------------------------ | :----- | :----- | :----- | | Net sales | $4,320.7 | $4,442.3 | $4,252.0 | | Gross profit | $350.7 | $340.2 | $303.8 | | Operating income | $58.5 | $156.3 | $111.0 | | Net (loss) income attributable to Fresh Del Monte Produce Inc. | $(11.4) | $98.6 | $80.0 | | Net (loss) income per ordinary share - Basic | $(0.24) | $2.06 | $1.68 | Consolidated Statements of Cash Flows Highlights (USD millions) | Item | 2023 | 2022 | 2021 | | :-------------------------------- | :----- | :----- | :----- | | Net cash provided by operating activities | $177.9 | $61.8 | $128.5 | | Net cash provided by (used in) investing activities | $56.4 | $(49.1) | $(82.5) | | Net cash used in financing activities | $(213.5) | $(12.0) | $(53.2) | | Cash and cash equivalents, ending | $33.8 | $17.2 | $16.1 | - The Company recorded $143.4 million in asset impairment and other charges (credits), net, in 2023, primarily related to fresh and value-added assets in North America ($109.6 million) and prepared foods goodwill ($21.6 million)[414] - Goodwill and indefinite-lived intangible assets totaled $435.2 million at December 29, 2023, down from $557.9 million in 2022, primarily due to impairment charges[422] - The valuation allowance for deferred tax assets increased by $42.2 million in 2023 to $525.7 million, reflecting a change in judgment about the ability to realize deferred tax assets[450] - The Company's long-term debt obligations, net of current portion, were $400.0 million as of December 29, 2023, with the Revolving Credit Facility maturing in February 2029[488][250] - Total purchases under agreements with independent growers amounted to $631.6 million for 2023[538] - The Company completed the acquisition of the remaining 25% noncontrolling interest in one of its Mann Packing subsidiaries for $5.2 million in cash in June 2023[591] Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure The Company reported no changes in or disagreements with accountants on accounting and financial disclosure matters - There were no changes in or disagreements with accountants on accounting and financial disclosure[595] Item 9A. Controls and Procedures Management concluded that disclosure controls and internal control over financial reporting were effective as of December 29, 2023, affirmed by Ernst & Young LLP - As of December 29, 2023, the CEO and CFO concluded that disclosure controls and procedures were effective[596] - Management determined that internal control over financial reporting was effective as of December 29, 2023, based on the COSO framework[598] - Ernst & Young LLP audited and issued an unqualified opinion on the effectiveness of the Company's internal control over financial reporting[600] Item 9B. Other Information No director or officer adopted or terminated a Rule 10b5-1 trading arrangement during the quarter ended December 29, 2023 - No director or officer adopted or terminated a Rule 10b5-1 trading arrangement or non-Rule 10b5-1 trading arrangement during the quarter ended December 29, 2023[601] Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections The Company states that Item 9C, Disclosure Regarding Foreign Jurisdictions that Prevent Inspections, is not applicable - Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections is not applicable[602] PART III Item 10. Directors, Executive Officers and Corporate Governance Information on directors, executive officers, and corporate governance is incorporated by reference from the 2024 Proxy Statement; the Company maintains a Code of Conduct - Information on directors, executive officers, and corporate governance is incorporated by reference from the 2024 Annual General Meeting of Shareholders Proxy Statement[604] - The Company has a Code of Conduct and Business Ethics Policy, which applies to all directors, officers, and employees, and had no waivers or amendments in 2023[605] Item 11. Executive Compensation Information concerning executive compensation is incorporated by reference from the 2024 Annual General Meeting of Shareholders Proxy Statement - Information on executive compensation is incorporated by reference from the 2024 Annual General Meeting of Shareholders Proxy Statement[606] Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Details on security ownership of beneficial owners, management, and equity compensation plans are incorporated by reference from the 2024 Proxy Statement - Information on security ownership of certain beneficial owners and management, and equity compensation plans, is incorporated by reference from the 2024 Annual General Meeting of Shareholders Proxy Statement[607] Item 13. Certain Relationships and Related Transactions, and Director Independence Information concerning certain relationships, related transactions, and director independence is incorporated by reference from the 2024 Annual General Meeting of Shareholders Proxy Statement - Information on certain relationships, related transactions, and director independence is incorporated by reference from the 2024 Annual General Meeting of Shareholders Proxy Statement[608] Item 14. Principal Accountant Fees and Services Information regarding principal accountant fees and services is incorporated by reference from the 2024 Annual General Meeting of Shareholders Proxy Statement - Information on principal accountant fees and services is incorporated by reference from the 2024 Annual General Meeting of Shareholders Proxy Statement[609] PART IV Item 15. Exhibits and Financial Statement Schedules This section lists financial statements and supplemental schedules from Item 8, along with a comprehensive index of exhibits filed with the SEC, including organizational documents - This section includes a list of consolidated financial statements and supplemental schedules, such as the Consolidated Balance Sheets, Statements of Operations, Cash Flows, and Shareholders' Equity[612] - A comprehensive list of exhibits is provided, including organizational documents, license agreements, credit agreements, and share incentive plans, with many incorporated by reference[613][614][616][617] Item 16. Form 10-K Summary The Company states that Item 16, Form 10-K Summary, is not applicable - Item 16. Form 10-K Summary is not applicable[619] SIGNATURES This section contains the required signatures for the Annual Report on Form 10-K, including those of the Chairman & CEO and CFO, certifying its submission - The report is signed by the Chairman & Chief Executive Officer, Senior Vice President & Chief Financial Officer, and other directors[623][624] - The report was signed and filed on February 26, 2024[623][624]