FRESH DEL MONTE PRODUCE INC Q3 FY2024 earnings call

Management Statement and Operational Highlights

• Mann Packing Update: Implemented a three-pronged approach to streamline operations (consolidate facilities, refine products, divest assets), expecting $15-20M annual savings starting 2025. Exiting lease facilities and selling certain assets of Fresh Leaf Farms.
• Third Quarter Performance: Gross profit up 26% driven by Fresh and Value-Added segments. Net income $42M vs $8M prior year. Fresh and Value-Added strong with pineapples (Honeyglow, PINKGLOW) and fresh-cut; leadership hires in sales, marketing, product management. Sustainability report achievements (emissions reduction target met 7 years early) and awards received.
• Weather and Strike Impact: ILA strike had no disruptions in utilized ports. Hurricanes Beryl, Helene, Milton caused minimal financial impact, with damage to Port Manatee facility assessed but no significant long-term effect.

Segment Performance

• Fresh and Value-Added product segment: Net sales for Q3 2024 were $624 million vs $574 million prior year. Driven by higher sales volume and per unit prices in avocado, pineapple, prepared food, and fresh-cut fruit. Gross profit was $63 million vs $36 million prior year, with a gross margin of 10.1% vs 6.3% prior year.
• Banana segment: Net sales $345 million vs $385 million prior year. Decrease due to lower volume in North America and Asia, and lower per unit pricing. Gross profit $21 million vs $32 million prior year, gross margin 6.2% vs 8.3% prior year.
• Other products and services segment: Net sales $51 million vs $44 million prior year. Gross profit $9 million vs $6 million prior year, gross margin 18.2% vs 14.2% prior year.

Guidance

• Fresh and Value-Added: Full-year net sales expected 3-4% higher than prior year, driven by avocado, pineapple, and fresh-cut. Full-year gross margin expected 9-10%, aiming for low teens over time. Initiatives include facility consolidation, innovation, and cost management.
• Banana: Full-year sales volume expected 5-7% lower, per unit pricing 4-5% lower than prior year. Gross margin expected 5-7%, consistent with historical range.
• Other Products and Services: Performance consistent with prior results for remainder of 2024.

Risks

• Weather Disruptions: Hurricanes Beryl, Helene, Milton caused minimal financial impact, but insurance coverage may not fully cover all damages or incremental expenses.
• Market Challenges: Banana segment facing volume and pricing pressures due to production issues in key regions (Philippines, Ecuador, etc.) and increasing production costs.
• Operational Restructuring: Uncertainties related to successful execution of Mann Packing restructuring and its impact on profitability.

Question and Answer

• Q: About Mann Packing savings and timing A: $15-20M annual savings from 2025 due to facility consolidation, with savings expected to be spread annually. Mix of volume and pricing contributed to Fresh and Value-Added growth.
• Q: Fresh and Value-Added gross profit and seasonality A: Gross profit double-digit, Q3 margin affected by seasonality (competition from summer fruits) but still strong; aiming for low teens gross margin long-term.
• Q: Banana business outlook A: Volume down and pricing down due to production issues in key regions and increasing costs; bananas remain important for retail visibility but focus on higher margin products.
• Q: New ventures update A: Kenya fertilizer operation in trial phase, Spain partners aiding product formulation; upcoming disclosures on new projects next year.