Fresh Del Monte Produce (FDP) - 2019 Q2 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Adjusted gross profit for Q2 2019 increased by 23% year-over-year, totaling an increase of $80 million [6] - Adjusted operating income and net income rose by $24 million and $27 million respectively year-over-year [6] - Earnings per diluted share for Q2 2019 were $0.69 compared to $0.14 in 2018 [13] - Net sales decreased by $33 million year-over-year [13] - Gross profit increased to $97 million in Q2 2019 from $79 million in 2018 [14] - Operating income for the quarter increased to $53 million compared to $29 million in the prior year [14] Business Segment Data and Key Metrics Changes - In the fresh and value-added business segment, net sales were $764 million compared to $781 million in the prior year, primarily due to lower sales in non-tropical pineapple and fresh cut vegetable product lines [15] - Gross profit for the fresh and value-added segment increased to $58 million from $51 million in Q2 2018 [16] - In the gold pineapple category, net sales decreased to $126 million from $139 million, with a 16% lower volume but an 8% higher unit pricing [17] - Fresh cut vegetable net sales decreased to $121 million from $125 million, primarily due to weather-related issues [19] - Avocado net sales increased to $125 million from $95 million, supported by higher selling prices and strong demand [20] Market Data and Key Metrics Changes - The pineapple market is expected to contract further, with fewer boxes exported from Central America [7] - The banana business segment saw net sales of $440 million compared to $458 million in Q2 2018, with a 7% lower volume [23] - Worldwide banana price increased by 3% to $14.94 per box [24] - The foreign currency impact at the sales level was unfavorable by $13 million [27] Company Strategy and Development Direction - The company is shifting focus towards becoming a more diversified and value-added entity [5] - Plans to open fresh fruit and beverage stores in the U.S. starting with Coral Gables by year-end [9] - A state-of-the-art packing facility in Mexico is expected to open in Q4, primarily for avocado and other products [10] - The company aims to reduce dependence on bananas while strengthening its position in key value-added product lines [12] Management's Comments on Operating Environment and Future Outlook - Management believes 2019 will be a turning point for the company, focusing on profitability over volume [5] - The company is confident in executing its strategy and achieving better pricing and cost structures [31] - The Panama disease poses a significant threat to the banana industry, with potential long-term impacts on supply and pricing [43][45] Other Important Information - Total debt at the end of the quarter was $640 million, down from $662 million at the end of 2018 [28] - Capital expenditures in Q2 2019 were $70 million, nearly $12 million lower than the same quarter in 2018 [29] - The company repurchased approximately 365,000 shares for about $9.2 million during the quarter [29] Q&A Session Summary Question: How much of the emphasis on value over volume is due to sourcing internally versus market conditions? - Management emphasized a focus on the bottom line rather than just volume, indicating a joint effort across the company to improve operations and pricing [31] Question: Are recent capital investments paying off in terms of pricing? - Management acknowledged that investments in efficiency and rationalization have contributed to better pricing and cost structures [33] Question: What drives the rationalization of product offerings? - The company is synchronizing and rationalizing products post-Mann Packing acquisition, aiming to introduce new and innovative products [35] Question: What is the strategy regarding the upcoming debt maturity? - Management is currently negotiating the renewal of credit facilities, expecting to conclude by early Q4 [38] Question: How does the banana market outlook look in different regions? - The European market is performing better than 2018, while the Far East remains stable [40] Question: How serious is the Panama disease threat? - Management indicated that the disease poses a significant risk to the industry, with potential long-term supply reductions [43][45] Question: What percentage of fruit comes from company-owned farms? - Approximately 30-35% of bananas and about 90% of pineapples come from company-owned production [47]