BlackRock TCP Capital Q1 2023 Earnings Call Transcript

Quartr
Provided by Quartr
May 3, 2023

There are 6 speakers on the call.

Operator

Good day, everyone, and welcome to Fresh Del Monte Produce's First Quarter 2023 Earnings Conference Call. Today's conference call is being broadcast live over the Internet and is also being recorded for playback purposes. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. For opening remarks and introductions, I would like to turn today's call over to Vice President, Corporate Communications with Fresh Del Monte Produce, Claudia Pope.

Operator

Please go ahead, Ms. Pope.

Speaker 1

Thank you, Christie. Good morning, everyone, and thank you for joining our Q1 2023 conference call. As Christy mentioned, I am Claudia Poe, Vice President, Corporate Communications with Fresh Del Monte Produce. Joining me in today's discussion are Mohammad Abu Ghazali, Chairman and Chief Executive Officer and Michael Vicente, Senior Vice President and Chief Financial Officer. I hope that you've had a chance to review the press release that was issued earlier this morning via Business Wire.

Speaker 1

You may also visit the company's our website at investorrelations.freshdelmonte.com to access today's earnings materials and to register for future distribution. This conference call is being webcast live on our website and will be available for replay after this call. Please note that our press release and our call today include non GAAP Reconciliations of these non GAAP financial measures are set forth in the press release and earnings presentation, which is available on our website. I would like to remind you that much of the information we will be speaking to today includes the answers we give in response to your questions, may include forward looking statements within the provisions of the federal securities laws, Safe Harbor. In today's press release And in our SEC filings, we detail material risks that may cause our future results to differ from these forward looking statements.

Speaker 1

Our statements are as of today, May 3, and we have no obligation to update any forward looking statement we may make. During the call, we will provide a business update along with an overview of our Q1 2023 financial results, followed by a question and answer session. With that, I am pleased to turn today's call over to Mohammad.

Speaker 2

Thank you, Claude, and good morning, everyone, Thank you for joining our Q1 'twenty three conference call. As mentioned, Thank you, Randy. Good morning, everyone. Overall, our first quarter results were positive, reflecting our unwavering commitment to profitability through efficiency During the Q1, our gross profit was 97 $1,000,000 and gross margin of 8.6 percent were stronger than the prior year period, which is reflective of Our ongoing strategic efforts to further increase our profitability despite the continued impact of inflation. We are starting to see more stability in the market.

Speaker 2

By the way, inflation is moderating, we are still operating in an inflationary environment. Given our global footprint, foreign exchange rates posed significant headwinds for us This quarter as did the continuing increase in interest rates. We were able to achieve strong results Despite the headwinds, we remain focused on optimizing our assets and unwavering commitment to improve profitability. This past quarter, we finalized the sale of 3 underutilized properties as part of our focus to optimize all corners of our business. We also recently upgraded the cargo capacity of 6 of our containerships by 10%, allowing us to expand our cargo services to fulfill new and existing customer needs.

Speaker 2

Additionally, we have solidified several new Inland transportation and warehousing partnerships for our Tricon Trucking and Tricon Logistics companies. We are committed to expanding our 3rd party logistics business by land and sea as we further leverage our asset footprint in Latin America and the United States. Our continued focus on innovation and value added products has led To a positive outlook and feedback from our customers, particularly our Fresh Cut business. Consumers are looking for the convenience and value added quality that Fresh Del Monte provides. We continue to work 1 on 1 with our top customers in North America to generate mutually beneficial opportunities.

Speaker 2

We have seen a uptick in orders for bulk cut produce, a new form of fresh cut for us, And it is fulfilling a need for major retailers. We'll continue to innovate fresh cut fruit and vegetables offering in collaboration with our customers to And finally, we have been recognized by Newsweek as one of America's Most Trusted Companies of 23 for the 2nd year in a row. We were rated on customer trust, investor trust and NTE trust. We are honored to be recognized once again for our honesty and transparency. As we look to the rest of 2023, we will continue to identify places where we can innovate And push the produce industry forward.

Speaker 2

We will work towards leveraging our strength in agriculture and supply chain To become a technology traded sustainable company. Now I will turn the call to Monica to talk about the financial results. Monica?

Speaker 3

Thank you, Mohammad, and thank you for joining us on today's call. Let's first talk about our Q1 of 2023 financial results. Net sales for the Q1 of 'twenty three were slightly lower by $8,000,000 or 1% compared with the prior year. The decrease in net sales was due to lower per unit selling prices of avocados and negative fluctuations in exchange rates, Primarily in Europe and Asia, combined with lower volumes in the Fresh and Value Added Products segment. However, most of the decrease was offset by higher per unit selling prices across most other products and higher banana sales volume.

Speaker 3

As Mohammad mentioned, we had a strong quarter. Gross profit for the Q1 of 2023 was higher by approximately $7,000,000 compared with the prior year. The increase in gross profit primarily relates to the higher per unit selling prices across most product categories, Partially offsetting the increase in gross profit were higher production and procurement costs as well as higher ocean freight costs due to continued inflation. Adjusted gross profit for the Q1 of 2023 was $99,000,000 compared with $90,000,000 in the prior year. Adjusted gross margin was 8.8% compared with 7.9% in the prior year.

Speaker 3

Adjusted operating income was $51,000,000 compared with $40,000,000 in the prior year. The increase in adjusted operating income was primarily due to higher gross profit. Adjusted FTP net income was $27,000,000 compared with $26,000,000 in the prior year. Our diluted earnings per share was $0.81 compared with $0.54 in the prior year. Adjusted diluted earnings per share remained The same as the prior year at $0.55 The difference between GAAP and adjusted diluted earnings per share during the Q1 of 2023 was $0.26 primarily related to the gain on sale of underutilized assets.

Speaker 3

Adjusted EBITDA for the first quarter of 2023 was $65,000,000 compared with $63,000,000 in the prior year period And corresponding adjusted EBITDA margin was 5.8% compared with 5.5% in the prior year. Let's now turn to the segment results beginning with our fresh and value added product segments. Net sales for the Q1 of 2023 decreased by approximately $29,000,000 to $643,000,000 when compared to the prior year period. The decrease was primarily due to lower per unit selling prices of avocados due to market volatility combined with a decrease in total sales volume for the segment. Most of the lower sales volume relates Fresh cut vegetables, prepared foods and vegetables.

Speaker 3

The lower sales volume for Fresh Cut Vegetables and vegetables was primarily a result of proactive steps we took to improve profitability. We expect these conditions to persist As we continue to focus on profitability and continue to experience avocado pricing volatility as compared to the prior year. The decrease in sales was primarily offset was partially offset by higher per unit prices across most other product categories And higher pineapple sales volume. Adjusted gross profit for the fresh and value added product segment for the Q1 of 2023 was $49,000,000 compared with $44,000,000 in the prior year. Despite lower net sales, gross profit was positively impacted by higher per unit sale prices for most categories.

Speaker 3

The segment continued to be negatively impacted by cost pressures of raw materials Such as packaging, fertilizers and also higher ocean freight costs. Gross profit for the fresh and value added product segment Includes a $1,700,000 inventory write off primarily due to the sale of 2 distribution centers in the Middle East. Adjusted gross margin for this segment increased to 7.6% compared with 6.6% in the prior year. Moving to our Banana segment. Net sales for the Q1 of 2023 increased by $19,000,000 or 5% compared with the prior year.

Speaker 3

The increase in net sales was primarily related to higher per unit selling prices In most regions and higher sales volume in North America and Europe. Net sales of bananas were negatively impacted by fluctuations in exchange rates, primarily in Europe and Asia. Banana segment adjusted gross profit for the Q1 of 2023 was $43,000,000 compared with $38,000,000 in the prior year. The increase in adjusted gross profit was primarily driven by higher net sales, partially offset by higher procurement and production costs such as packaging material and labor as well as higher ocean freight costs. Adjusted gross margin for the segment increased to 10.2% compared with 9.3% in the prior year.

Speaker 3

Lastly, net sales in our other products and services segment increased by $2,000,000 or 3% mainly due to higher net sales of 3rd Party Ocean Freight Services. Adjusted gross profit for our Other Products and Services segment decreased by $1,000,000 as a result of higher costs. Now moving to selective financial data. Selling, general and administrative expenses was $48,000,000 compared with $45,000,000 in the prior year. The increase was primarily driven by higher employee compensation costs, Higher professional fees and higher advertising and promotional expenses.

Speaker 3

Net interest expense was $8,000,000 compared with $5,000,000 in the prior year, driven by higher interest rates. Other expense net for the Q1 of 2023 was $9,000,000 compared with $4,000,000 in the prior year period. The increase primarily relates to higher foreign currency related losses. Of the foreign currency losses in the Q1 of 2023, $6,000,000 represented unrealized losses from our balance sheet position in certain foreign jurisdictions. Income tax provision was $10,000,000 compared with $6,000,000 in the prior year period.

Speaker 3

The increase in income tax provision was primarily due to increased earnings In certain higher tax jurisdictions. Let's move now to our cash flow. Net cash provided by operating activities for the first Quarter of 2023 was $16,000,000 compared with net cash used in operating activities of $300,000 in the prior year period. The increase was due to working capital reductions mainly related to levels of accounts receivable and raw materials And Packaging Supplies inventory. Long term debt decreased by $81,000,000 to $473,000,000 At the end of the Q1 of 2023 compared with €554,000,000 at the end of the same quarter last year.

Speaker 3

As it relates to capital spending, we invested CAD10 1,000,000 in the Q1 of 2023 compared with CAD11 1,000,000 in the prior year period. As announced this morning in our financial results press release, our Board of Directors declared a quarterly cash dividend of $0.20 per share Payable on June 9, 2023 to shareholders of record on May 17, 2023. This is an increase from our previous quarterly dividend of $0.15 per share. This concludes our financial review. We can now turn the call over to Q and A.

Speaker 3

Christie?

Operator

We'll pause for just a moment to compile the Q and A roster. And your first question comes from the line of Mitch Penaero from St. Stephen and Company.

Speaker 2

Yes, hi. Good morning. Good morning. So

Speaker 4

I guess, I was a couple of questions. First, I want to start on banana, the banana business, just to get that out of the way. Yes. You had a good quarter there. What's the as you look you don't have a long term view, but As we look into this quarter, do we see stability in the market still?

Speaker 4

Is supply and demand in balance? And What's the will margins be reasonably strong? You still keep the pricing that you've been able To implement?

Speaker 2

Yes. As we speak right now, which we see the market Stable. Of course, the summer months usually is a little bit soft compared to the rest of the year. But surprisingly, Europe It was very kind of stable and solid throughout the winter season, And we don't see much fluctuations. Actually, because of the financial situation over the last 2, 3 years, We have seen several many operators ripening operations and other traders in bananas I have got out of the market, so the market has became more kind of stable, less volatile, especially in Europe.

Speaker 2

North America is normal. It's stable. Far East, Philippines is Coming down in production because of the disease. So volumes are coming down from the Philippines to the Asian markets, which There's room for Central America, Ecuador to have more outlets. So I see all in all, I see the Kind of banana market stabilized and with better kind of supply and demand planning, I see things going forward in a much more normal way than the previous years.

Speaker 4

And are you increasing, as you did in the Q4, do we expect to see more of your own fruit Sold rather than 3rd party purchased fruit?

Speaker 2

No, we do actually we are more opportunistic, Let's say, management of our volumes. We have our own volumes, Which we are not planning to increase increasing our own volumes means heavy investments, which we are not planning to do Rather than working on 3rd party, but leveraging that with opportunistic, let's say, Management of the volume of the purchases.

Speaker 4

Okay. And then moving on to fresh and value added.

Speaker 2

In the fresh cut business,

Speaker 4

Specifically, I think you said, I haven't seen your Q yet, but I think fresh cut Volumes were up?

Speaker 2

The volumes We're a little bit down, but marginally really, I mean, it's because of either Availability of certain fruits during the season, like strawberries, mangoes, which are very volatile in terms of volumes throughout Different seasons. And that's why one of the reasons as well as shortage of pineapples during sometime during this quarter. So that really helped, but it was marginal. And we during the next few months, we will be having Hopefully, a major kind of entry into the market and a new, Let's say value added product with a partnership. So I can't disclose this at this time, but hopefully by Sometime during the next few months, we will be announcing it.

Speaker 4

Okay. And then

Speaker 2

When it

Speaker 4

comes to margins, I mean, they've improved nicely. Are these margins sustainable or does it depend on your product mix?

Speaker 2

No, they are sustainable in my opinion. It's just a matter of better, let's say, supply Kind of management and making sure your supply chain is more planned forward And this is what really our team is doing right now is that, as I mentioned all the time that We are using technology a lot more now in our business and which we are leveraging more and more as we go forward. And this will give us a kind of an edge of how to manage our supply chain and better planning going forward.

Speaker 4

Okay. And then my last question just is on sort of your balance sheet and CapEx. I mean, Your balance sheet leverage has come down nicely with the recent asset sales. What are your thoughts On the balance sheet, do you obviously, you raised the dividend, so you feel pretty good about Sort of your financial position, but do you intend to look at share repurchases? Do you intend to Look at acquisitions or do you want to just continue to keep a low debt profile?

Speaker 2

No, I think we're not planning to purchase Sure. I mean, my back right now, I think we will probably focus more on retaining value to our shareholders As well as looking at consolidating our business and expanding it from within actually organically, which we have many areas where we are And the pipeline, which will come up probably by towards the end of the year there, there will be projects that will start Kicking in and there will be everything that we are working now is on added value, I mean, Value added products or value added activities, let's say, relates to our business in general.

Speaker 4

Okay. Well, thank you for taking the questions. I'll get back in the queue.

Speaker 2

Thank you.

Operator

Your next question comes from the line of Jonathan Feeney with Consumer Edge.

Speaker 5

Good morning. Thank you very much, Mohammed and Company. My first question is about the pricing environment and attitude retailers have towards your product And pricing, we're hearing a lot across the industry concern about stressed consumers and bananas tend to be a place where It's very visible price for consumers and you had a good quarter there. It's also the least expensive and probably best value thing in the entire grocery store. So Yes.

Speaker 5

Where a lot of I mean, the big debate in the space is how is pricing how are all these companies able to price and hold on to margin at a time when consumers are stressed? Do you feel about that for your businesses, both fresh and value added?

Speaker 2

We are doing our best to we have been sustaining As you can see in our results, we have been impacted so heavily by the increased cost in all the materials That be it in raw material, be it in packaging or transportation. So we have been absorbing a lot of this cost ourselves. No matter how much we pass to the retailers or to the buyers, it is a fraction of what we really have incurred in our Balance sheet in terms of costs. So I think there is a limit to that. I hope that Cost of raw materials start easing up a little bit, which I don't see at this time.

Speaker 2

But hopefully, within By the next two quarters, hopefully, things will start softening and this will reflect on our cost and our results As well, we haven't increased our prices in any significant way in the last few months to our buyers. And I think in the case of produce and bananas in particular, I don't think that our prices have increased in relation to the general market. If you look at consumer goods or even QSRs or whatever other sector in the industry, we are probably the least that have increased prices.

Speaker 5

Okay. Yes, it's been for a company of your competitive set And efficiency and the cost and replacement cost through logistics, it's been remarkable how Many costs you have absorbed, it's nice to see that at least working in the Banana business right now. Can you second question, can you up Maybe forgive me if you already answered this, but where are we on strategic asset sales? Are we all done selling assets or are there more assets to sell?

Speaker 2

There are more assets. What we are doing is really becoming a light asset operator. Like What we sold in the Middle East, the 2 distribution centers, actually, we have leased back only what we need For our operations. So we did not get out of the business. We just sold the assets, leased back some of the space that we need.

Speaker 2

And that means that we are out of this huge fixed cost and big depreciation ticket. So this is the kind of approach that we are doing. We have a lot of assets. We are a very rich Company with assets.

Speaker 4

Absolutely. And

Speaker 2

we have And these assets are so much undervalued in our books. So we will keep we have several assets that are still earmarked For disposal and sale if the market and the price is right. So there will be some in the next few quarters.

Speaker 5

Thank you, Mohammad. And since you mentioned it, Can you give I know it's a complicated topic. We've been talking about it for 20 years. But could you give People have way to dimensionalize, you say assets are undervalued. How can people think about that?

Speaker 5

Like Can I look at recent transactions for key strategic assets of yours and say they're undervalued by half, they're undervalued by like How can I I know you can't give me a number, but like how can you think about that so people can look around and believe that, yes, this is a company that's got assets far in SaaS of what it's there on the books for?

Speaker 2

Well, our assets today, if you look at them, I think they are valued around 6% In terms of EBITDA, I think that the market fair market value is around 14 in my opinion. And we have other assets in certain countries that are extremely valuable because These assets are almost farms that happen to be very close to the city. Now our organization is coming very close And the value of these properties will become extremely valuable as we go forward in the years. This is farmland that turned out to be urban or Commercial value. So that's why we are very confident about our asset base.

Speaker 2

I mean, if you look at our book value Compared to our share price, it's I mean, it speaks for itself. That let alone that we haven't talked About the real value of the assets. You're talking about book value, let alone real value. So we are very comfortable. We are very confident and With all the projects that we are undertaking right now in the pipeline, I believe that Fresh Del Monte will be completely a different company in the next 12 months.

Speaker 5

Last question, I guess you took us there. Our work suggests the Del Monte brand name is extremely well known American households compared to the number of people who are buying your products right now on the value added side, it suggests I know You have these JVs, you have some rights to make different categories of value added products. I mean, What has been the bottleneck preventing you from having a wider array of more non fresh Value added products under the well known Del Monte brand name. And what can we look forward to in the next 12 months in terms of getting more products in consumers' hands?

Speaker 2

You will be hearing hopefully in the next few months. And that's why you said it very, very well that the Almaty brand is extremely Strong brand and recognizable. And that's why we have been approached by some companies to partner and Share our brand in some of the value added products. So you will be seeing in the next few months, hopefully, as we go forward in the year, What we are talking about and that's part of our kind of a new kind of Approach to the market and the our focus.

Speaker 5

That's awesome. Thank you, Mohammad. Thanks for all the time.

Speaker 2

My pleasure.

Operator

There are no further questions at this time. Are there any closing remarks?

Speaker 2

I would like to thank everyone for having the time to share with us today and hope to talk to you soon.

Powered by Quartr
Earnings Conference Call
BlackRock TCP Capital Q1 2023
00:00 / 00:00