FRESH DEL MONTE PRODUCE INC Q2 FY2024 earnings call

Management Statement and Operational Highlights

• Fresh and Value-Added: Achieved margin improvements; gross margin 11.2% vs 9.2% prior year. Japan: consolidating facilities to reduce costs. Europe: expanded Fresh Cut facility in UK. Fresh guacamole test run successful, sold over 315,000 units in 7 months. Avocado program showing potential. Opened biofertilizers plant in Kenya using pineapple residues.
• Mann Packing: Actively exploring strategic alternatives for the business.
• Financials: Net sales $1.140 million vs $1.181 million prior year. Gross profit $113 million vs $117 million prior year. Gross margin 9.9% in line with prior year. Balance sheet strengthened with long-term debt at $285 million, lowest since 2017, and capital expenditures expected $60-65 million for year.

Segment Performance

• Fresh and Value-Added Product segment: Net sales for Q2 2024 were $694 million (prior year $678 million). Gross profit was $78 million (prior year $62 million) with a gross margin of 11.2% (prior year 9.2%). The increase in net sales was due to higher per-unit selling prices of avocados, non-tropical fruit, offset by lower sales volume of vegetables and fresh-cut fruit.
• Banana segment: Net sales were $394 million (prior year $449 million). Gross profit was $30 million (prior year $51 million) with a gross margin of 7.6% (prior year 11.3%). Decrease was due to lower sales volume and per-unit selling prices, impacted by competitive pressures and exchange rates.
• Other Products and Services segment: Net sales were $51 million (prior year $54 million). Gross profit was $6 million (prior year $4 million) with a gross margin of 10.7% (prior year 7.8%). Decrease was due to sale of Chilean plastic products business in prior year, offset by higher per-unit selling prices in poultry and meats.

Guidance

• Fresh and Value-Added: Net sales expected 1-2% higher than prior year, despite third quarter seasonal pressures from competing fruits.
• Banana: Full year sales volume expected 5-7% lower, per-unit pricing 4-5% lower due to competitive pressures and Red Sea shipping challenges.
• Other Products and Services: Results consistent with first half of year.

Risks

• Weather: High temperatures and low rainfall in production areas (Central America, Philippines) impacting costs.
• Exchange Rates: Fluctuations affecting financials.
• Shipping: Red Sea challenges impacting banana segment.
• Seasonal: Third quarter competitive pressures on fresh and value-added products.

Q: About margin sustainability in fresh and value-added, especially in the back half A: Progress made in improving margins, with momentum expected to continue despite third quarter seasonal pressures. Mix with Honey Glow Pineapple and fresh-cut products contributing.

Q: About Kenya biofertilizers plant, including when it opened and scale A: Plant just started production last month, expects concrete results by end of year with help from Spanish associate partner.

Q: About produce demand in US, especially North America, and pricing trends A: Produce pricing challenging, but fresh-cut fruit and guacamole performing well. Guacamole sold over 315,000 units in 7 months.

Q: About pineapple volume growth projection of 3% CAGR A: Limited by land availability and difficulty in finding new areas for pineapple production, but vertically integrated model provides consistency.

Q: About Honey Glow pineapple competition and protection A: Unique variety and control over production (growing over 70% of volume) give competitive advantage; no one has successfully copied due to expertise and pure seeds.