Fresh Del Monte Produce Inc. Reports Second Quarter 2018 Financial Results

Jul 31, 2018 06:00 am
CORAL GABLES, Fla. -- 

Fresh Del Monte Produce Inc. (NYSE: FDP) today reported financial results for the second quarter ended June 29, 2018. The Company reported a loss per diluted share of $0.16 for the second quarter 2018, compared with earnings per diluted share of $1.36 in the second quarter of 2017. Comparable earnings per diluted share were $0.14 in the second quarter of 2018, compared with comparable earnings per diluted share of $1.40 in the second quarter of 2017.

"The quarter was highlighted by our recent acquisition of Mann Packing Company, and by strong sales growth, despite reductions in pricing across many of our products,” said Mohammad Abu-Ghazaleh, Chairman and Chief Executive Officer. “Uncontrollable factors led by congestion, delays and inclement weather at our loading ports in Central America, substantially lower banana selling prices in Europe, an oversupply of pineapples in North America, continued tightening of the transportation market, and higher commodity costs adversely affected our overall performance. Looking ahead, we remain firmly focused and committed to investing in and further diversifying our global operations while driving profitable growth over the long-term.”

Net sales for the second quarter of 2018 were $1,272.4 million, compared with $1,147.1 million in the second quarter of 2017. The increase in net sales was the result of higher net sales in the Company's other fresh produce and prepared food business segments, primarily due to the acquisition of Mann Packing, partially offset by lower net sales in the Company's banana business segment.

Gross profit for the second quarter of 2018 was $78.3 million, compared with $123.2 million in the second quarter of 2017. The decrease in gross profit was the result of lower gross profit in all of the Company's business segments, principally due to lower selling prices in the Company's banana and other fresh produce business segments, along with the negative impact of transportation and production costs.

Operating income for the second quarter of 2018 was $13.8 million, compared with operating income of $79.5 million in the second quarter of 2017. Comparable operating income was $28.6 million in the second quarter of 2018, compared with comparable operating income of $81.6 million in the second quarter of 2017. The decrease was primarily due to lower gross profit, higher asset impairment and other charges, net and higher selling, general and administrative expenses.

Net income attributable to Fresh Del Monte Produce Inc. for the second quarter of 2018 was a net loss of $7.9 million, compared with net income attributable to Fresh Del Monte Produce Inc. of $69.2 million in the second quarter of 2017. Comparable net income was $6.9 million in the second quarter of 2018, compared with comparable net income of $71.3 million in the second quarter of 2017. The change was primarily the result of lower operating income, higher foreign exchange losses, and higher interest expense.

 
Fresh Del Monte Produce Inc. and Subsidiaries
Condensed Consolidated Statements of Income
(U.S. dollars in millions) - (Unaudited)
       
Quarter ended Six months ended
 
Income Statement: June 29,
2018 		June 30,
2017 		June 29,
2018 		June 30,
2017
Net sales $ 1,272.4 $ 1,147.1 $ 2,378.5 $ 2,179.5
Cost of products sold 1,193.9 1,023.6 $ 2,193.5 1,956.9
Other charges (1) 0.2   0.3   0.2   0.3  
Gross profit 78.3 123.2 184.8 222.3
 
Selling, general and administrative expenses 49.9 41.9 98.5 89.8
Gain on disposal of property, plant and equipment, net (2) (5.7 ) (0.1 ) (5.9 ) (0.9 )
Asset impairment and other charges, net (1) 20.3   1.9   21.9   —  
Operating income 13.8 79.5 70.3 133.4
 
Interest expense, net 5.7 1.4 9.3 2.7
Other expense, net 7.3   0.5   10.7   0.6  
 
Income before income taxes 0.8 77.6 50.3 130.1
 
Provision for income taxes 6.4   7.8   12.7   14.7  
Net (loss) income $ (5.6 ) $ 69.8   $ 37.6   $ 115.4  
 
Less: Net income (loss) attributable to redeemable and noncontrolling interests 2.3   0.6   4.0   (0.2 )
Net (loss) income attributable to Fresh Del Monte Produce Inc. $ (7.9 ) $ 69.2   $ 33.6   $ 115.6  
 
Net (loss) income per ordinary share attributable to
Fresh Del Monte Produce Inc. - Basic $ (0.16 ) $ 1.37   $ 0.69   $ 2.27  
 
Net (loss) income per ordinary share attributable to
Fresh Del Monte Produce Inc. - Diluted $ (0.16 ) $ 1.36   $ 0.69   $ 2.25  
 
Dividends declared per ordinary share $ 0.15   $ 0.15   $ 0.30   $ 0.30  
 
Weighted average number of ordinary shares:
Basic 48,753,227   50,572,056   48,767,411   50,895,738  
Diluted 48,753,227   50,932,365   49,012,397   51,300,697  
 
Selected Income Statement Data:
Depreciation and amortization $ 23.5   $ 20.2   $ 44.6   $ 40.2  
 
Non-GAAP Measures (per share):
Reported net (loss) income - Diluted $ (0.16 ) $ 1.36 $ 0.69 $ 2.25
Asset impairment and other charges, net (1) 0.42 0.04 0.45 0.01
Gain on disposal of property, plant and equipment, net (2) (0.12 ) —   (0.12 ) (0.02 )
Comparable net (loss) income - Diluted $ 0.14   $ 1.40   $ 1.02   $ 2.24  
 
(1)   Asset impairment and other charges, net for the quarter ended June 29, 2018 included restructuring activities in Asia and South America and acquisition costs in North America. Asset impairment and other charges, net for the six months ended June 29, 2018 also included acquisition costs related to Mann Packing and insurance proceeds in North America. Asset impairment and other charges, net for the quarter ended June 30, 2017 included impairment charges in South America, Central America and Asia. Asset impairment and other charges, net for the six months ended June 30, 2017 also included insurance proceeds related to previously announced flooding in South America offset by impairment charges in Asia.
 
(2) Gain on disposal of property, plant and equipment, net for the quarter and six months ended June 29, 2018 primarily related to a gain on sale of property and assets in Europe and South America offset by asset disposals in South America due to restructuring activities. Gain on disposal of property, plant and equipment, net for the quarter and six months ended June 30, 2017 primarily related to maritime equipment sales.
 
Fresh Del Monte Produce Inc. and Subsidiaries
Business Segment Data
(U.S. dollars in millions) - (Unaudited)
   
  Quarter ended
  June 29, 2018     June 30, 2017
Segment Data:                      
  Net Sales     Gross Profit   Net Sales   Gross Profit
 
Other fresh produce

$

721.0 57 %

$

46.9 60 %

$

568.1 49 %

$

55.0 45 %
Banana

 

457.8 36 %

 

23.8 30 %

 

499.5 44 %

 

58.1 47 %
Prepared food   93.6   7 %   7.6   10 %   79.5   7 %   10.1   8 %

$

1,272.4   100 %

$

78.3   100 %

$

1,147.1   100 %

$

123.2   100 %
 
 
Quarter ended
Net Sales by Geographic Region: June 29,
2018 		  June 30,
2017
           
North America $ 814.8   64 % $ 655.5   57 %
Europe 175.8 14 % 192.7 17 %
Middle East 126.0 10 % 147.8 13 %
Asia 135.8 11 % 138.5 12 %
Other 20.0   1 % 12.6   1 %
$ 1,272.4   100 % $ 1,147.1   100 %
 
 
Fresh Del Monte Produce Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(U.S. dollars in millions) - (Unaudited)
   
June 29,
2018 		December 29,
2017
 
Assets
Current assets:
Cash and cash equivalents $ 39.8 $ 25.1
Trade accounts receivable, net 421.1 358.8
Other accounts receivable, net 72.2 73.6
Inventories, net 513.1 541.8
Other current assets 37.3   20.5
Total current assets 1,083.5   1,019.8
 
Investment in and advances to unconsolidated companies 6.1 2.0
Property, plant and equipment, net 1,414.7 1,328.3
Goodwill 590.4 261.9
Other noncurrent assets 165.8   154.9
Total assets $ 3,260.5   $ 2,766.9
 
Liabilities and shareholders' equity
Current liabilities:
Accounts payable and accrued expenses $ 479.3 $ 382.4
Current portion of long-term debt and capital lease obligations 0.5 0.6
Other current liabilities 12.7   10.8
Total current liabilities 492.5   393.8
 
Long-term debt and capital lease obligations 689.1 357.0
Other noncurrent liabilities 228.3   224.9
Total liabilities 1,409.9   975.7
 
Redeemable noncontrolling interests 40.8 —
 
Total Fresh Del Monte Produce Inc. shareholders' equity 1,783.4 1,767.4
Noncontrolling interests 26.4   23.8
Total shareholders' equity 1,809.8   1,791.2
Total liabilities and equity $ 3,260.5   $ 2,766.9
 
 
Selected Balance Sheet Data:
Working capital $ 591.0 $ 626.0
Total debt $ 689.6 $ 357.6
 
 
Fresh Del Monte Produce Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(U.S. dollars in millions) - (Unaudited)
  Six months ended
June 29,
2018 		  June 30,
2017
Operating activities:
Net income $ 37.6 $ 115.4
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 44.3 40.0
Amortization of debt issuance costs 0.3 0.2
Asset impairment, net 18.3 2.2
Share-based compensation expense 7.0 6.5
Deferred income taxes 1.6 0.2
Gain on disposal of property, plant and equipment, net (5.9 ) (0.9 )
Foreign currency translation adjustment (1.8 ) 6.2
Other 0.1 0.2
Changes in operating assets and liabilities, net of the effect of acquisitions:
Receivables (22.3 ) (28.2 )
Inventories 51.6 34.4
Prepaid expenses and other current assets (11.4 ) (4.2 )
Accounts payable and accrued expenses 53.1 12.5
Other noncurrent assets and liabilities (10.2 ) (10.6 )
Net cash provided by operating activities 162.3   173.9  
 
Investing activities:
Capital expenditures (81.8 ) (71.9 )
Investments in unconsolidated companies (4.2 ) —
Proceeds from sales of property, plant and equipment 8.2 2.9
Purchase of businesses, net of cash acquired (373.3 ) —  
Net cash used in investing activities (451.1 ) (69.0 )
 
Financing activities:
Net borrowings on long-term debt 329.4 (6.4 )
Distributions to noncontrolling interests, net (1.8 ) (3.6 )
Net proceeds related to share-based awards 0.4 (3.7 )
Dividends paid (14.6 ) (15.2 )
Repurchase and retirement of ordinary shares (9.8 ) (71.6 )
Net cash provided by (used in) financing activities 303.6   (100.5 )
 
Effect of exchange rate changes on cash (0.1 ) (0.1 )
 
Net increase in cash and cash equivalents 14.7 4.3
Cash and cash equivalents, beginning 25.1   20.1  
Cash and cash equivalents, ending $ 39.8   $ 24.4  
 

Second Quarter 2018 Business Segment Performance

(As reported in business segment data)

Other Fresh Produce

Net sales for the second quarter of 2018 increased to $721.0 million, compared with $568.1 million in the second quarter of 2017. The increase in net sales was primarily due to higher net sales in the Company's fresh-cut, vegetable and avocado product lines. Gross profit for the second quarter of 2018 decreased to $46.9 million, compared with gross profit of $55.0 million in the second quarter of 2017.

Gold pineapple - Net sales increased 3% to $139.4 million, compared with the prior year. Volume increased 12%. Pricing was 8% lower. Unit cost was 6% higher.

Fresh-cut - Net sales increased 61% to $272.0 million, compared with the prior year, principally due to the acquisition of Mann Packing. Volume increased 96%. Pricing was 18% lower. Unit cost was 19% lower.

Avocados - Net sales increased 11% to $95.1 million, compared with the prior year. Volume increased 43%. Pricing decreased 22%. Unit cost was 24% lower.

Non-tropical - Net sales increased 10% to $86.4 million, compared with the prior year. Volume increased 5%. Pricing increased 5%. Unit cost was 12% higher.

Vegetables - Net sales increased to $38.7 million, compared with $6.8 million in the prior year. Volume and pricing also increased, principally due to the acquisition of Mann Packing. Unit cost was 4% lower.

Bananas

Net sales for the second quarter of 2018 decreased to $457.8 million, compared with $499.5 million in the second quarter of 2017. Volume was 6% lower than the prior year. Worldwide pricing decreased $0.40, or 3%, to $14.52 per unit, compared with $14.92 per unit in the second quarter of 2017. Gross profit for the second quarter of 2018 decreased to $23.8 million, compared with $58.1 million in the second quarter of 2017. Unit cost was 4% higher than the prior year period.

Prepared Food

Net sales for the second quarter of 2018 increased to $93.6 million, compared with $79.5 million in the second quarter of 2017, primarily the result of higher net sales in the Company's prepared vegetables product line, principally due to the acquisition of Mann Packing, partially offset by lower net sales in the Company's canned pineapple product line. Gross profit for the quarter decreased to $7.6 million, compared with $10.1 million in the second quarter of 2017, principally the result of higher fruit costs.

Selling, General and Administrative Expenses

Selling, general and administrative expenses for the second quarter increased to $49.9 million, compared with $41.9 million in the second quarter of 2017, principally due to higher selling, marketing and administrative expenses in North America as a result of the acquisition of Mann Packing.

Cash Flows

Net cash provided by operating activities for the first six months of 2018 was $162.3 million, compared with $173.9 million in the same period of 2017. The decrease in net cash provided by operating activities was primarily attributable to lower net income, partially offset by higher levels of accounts payable and accrued expenses, and lower inventory.

Other Expense, Net

Other expense, net for the second quarter was an expense of $7.3 million, compared with an expense of $0.5 million in the second quarter of 2017. The change was principally attributable to higher foreign exchange losses during the second quarter of 2018.

Total Debt

Total debt increased from $357.6 million at the end of 2017 to $689.6 million at the end of the second quarter of 2018, primarily related to the acquisition of Mann Packing.

Interest Expense, Net

Interest expense, net for the second quarter was $5.7 million, compared with $1.4 million in the second quarter of 2017. The increase was due to higher average loan balances as a result of the Mann Packing acquisition, along with higher interest rates.

Non-GAAP Measures

The Company's results are determined in accordance with U.S. generally accepted accounting principles (GAAP). Some of the information presented in this press release reflects adjustments to GAAP measures such as amounts related to restructuring, asset impairment charges, loss (gain) on sales of assets and certain other special items, if any. Management believes these adjustments provide a more comparable analysis of the ongoing operating performance of the business. These adjustments result in non-GAAP financial measures and are referred to in this press release as comparable operating income, comparable net income and comparable net income per share. Because all companies do not use identical calculations, our presentation of these non-GAAP financial measures may not be comparable to similarly titled measures used by other companies.

Comparable operating income (loss) and comparable net income (loss) provide us with an understanding of the results from the primary operations of our business. We use comparable operating income (loss) and comparable net income (loss) to evaluate our period-over-period operating performance because management believes they provide more comparable measures of our continuing business as they adjust for special items that are not reflective of the normal earnings of our business. These measures may be useful to an investor in evaluating the underlying operating performance of our business because these measures:

  1. Are used by investors to measure a company's comparable operating performance;
  2. Are financial measurements that are used by lenders and other parties to evaluate creditworthiness; and
  3. Are used by our management for various purposes, including as measures of performance of our operating entities and as a basis of strategic planning and forecasting.

Conference Call and Web Cast Data

Fresh Del Monte will host a conference call and simultaneous webcast at 11:00 a.m. Eastern Time today to discuss the second quarter 2018 financial results and to review the Company’s progress and outlook. The webcast can be accessed on the Company’s Investor Relations home page at www.freshdelmonte.com. The call will be available for re-broadcast on the Company’s website approximately two hours after the conclusion of the call.

About Fresh Del Monte Produce Inc.

Fresh Del Monte is one of the world’s leading vertically integrated producers, marketers and distributors of high-quality fresh and fresh-cut fruit and vegetables, as well as a leading producer and distributor of prepared food in Europe, Africa and the Middle East. Fresh Del Monte markets its products worldwide under the Del Monte® brand, a symbol of product innovation, quality, freshness and reliability for more than 125 years.

Forward-looking Information

This press release contains certain forward-looking statements regarding the intent, beliefs or current expectations of the Company or its officers with respect to the Company’s plans and future performance. These forward-looking statements are based on information currently available to the Company and the Company assumes no obligation to update these statements. It is important to note that these forward-looking statements are not guarantees of future performance and involve risks and uncertainties. In this press release, these statements appear in a number of places and include statements regarding the intent, beliefs or current expectations of us or our officers (including statements preceded by, followed by or that include the words “believes”, “expects”, “anticipates” or similar expressions) with respect to various matters, including our plans and future performance. These forward-looking statements involve risks and uncertainties. Fresh Del Monte’s actual plans and performance may differ materially from those in the forward-looking statements as a result of various factors, including (i) the uncertain global economic environment and the timing and strength of a recovery in the markets we serve, and the extent to which adverse economic conditions continue to affect our sales volume and results, including our ability to command premium prices for certain of our principal products, or increase competitive pressures within the industry, (ii) the impact of governmental initiatives in the United States and abroad to spur economic activity, including the effects of significant government monetary or other market interventions on inflation, price controls and foreign exchange rates, (iii) the impact of governmental trade restrictions, including adverse governmental regulation that may impact our ability to access certain markets such as uncertainty surrounding the recent vote in the United Kingdom to leave the European Union (often referred as Brexit), including spillover effects to other Eurozone countries, (iv) our anticipated cash needs in light of our liquidity, (v) the continued ability of our distributors and suppliers to have access to sufficient liquidity to fund their operations, (vi) trends and other factors affecting our financial condition or results of operations from period to period, including changes in product mix or consumer demand for branded products such as ours, particularly as consumers remain price-conscious in the current economic environment; anticipated price and expense levels; the impact of crop disease, severe weather conditions, such as flooding, or natural disasters, such as earthquakes, on crop quality and yields and on our ability to grow, procure or export our products; the impact of prices for petroleum-based products and packaging materials; and the availability of sufficient labor during peak growing and harvesting seasons, (vii) the impact of pricing and other actions by our competitors, particularly during periods of low consumer confidence and spending levels, (viii) the impact of foreign currency fluctuations, (ix) our plans for expansion of our business (including through acquisitions) and cost savings, (x) our ability to successfully integrate acquisitions into our operations, (xi) the impact of impairment or other charges associated with exit activities, crop or facility damage or otherwise, (xii) the timing and cost of resolution of pending and future legal and environmental proceedings or investigations, (xiii) the impact of changes in tax accounting or tax laws (or interpretations thereof), and the impact of settlements of adjustments proposed by the Internal Revenue Service or other taxing authorities in connection with our tax audits, and (xiv) the cost and other implications of changes in regulations applicable to our business, including potential legislative or regulatory initiatives in the United States or elsewhere directed at mitigating the effects of climate change. All forward-looking statements in this report are based on information available to us on the date hereof, and we assume no obligation to update any such forward-looking statements. The Company’s plans and performance may also be affected by the factors described in Item 1A. - “Risk Factors” in Fresh Del Monte Produce Inc.’s Annual Report on Form 10-K for the year ended December 29, 2017 along with other reports that the Company has on file with the Securities and Exchange Commission.

Fresh Del Monte Produce Inc.
Christine Cannella, 305-520-8433
Assistant Vice President, Investor Relations