(DOLE) Q3 2024 Earnings Call Transcript

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November 13, 2024

There are 7 speakers on the call.

Operator

Welcome to the Dole P. C. Third Quarter 2024 Earnings Conference Call and Webcast. Today's conference is being broadcast live over the Internet and is also being recorded for playback purposes. Currently, all participants are in a listen only mode.

Operator

After the speakers' presentation, there will be a question and answer session. For opening remarks and introductions, I would like to turn the call over to the Head of Investor Relations with Dole Plc, James O'Regan.

Speaker 1

Thank you, Christa. Welcome everybody and thank you for taking the time to join our Q3 2024 earnings call. Joining me today is our Chief Executive Officer, Rory Byrne our Chief Operating Officer, Johan Linden and our Chief Financial Officer, Jacinta Devine. During this call, we will be referring to presentation slides for supplemental remarks and these along with our earnings release and other related materials are available on the Investor Relations section of the Dole's PLC website. Please note our remarks today will include certain forward looking statements within the provisions of the federal securities safe harbor law.

Speaker 1

These reflect circumstances at the time they are made and the company expressly disclaims any obligation to update or revise any forward looking statements. Actual results or outcomes may differ materially from those that may be expressed or implied due to a wide range of factors, including those set forth in our SEC filings and press releases. Information regarding the use of non GAAP financial measures may be found in our press release, which also includes a reconciliation to the most comparable GAAP measures. With that, I'm pleased to turn today's call over to Rory.

Speaker 2

Thank you, James. Welcome everybody and thank you for joining us today as we discuss our results for the Q3 of 2024. So turning firstly to slide 4 and the Q3 financial highlights. Well, the 3rd quarter was another positive quarter for our business continuing the good momentum built up over the course of this year. Group reported revenue increased by 1% on a like for like basis, the increase was 5.8%.

Speaker 2

Adjusted EBITDA of $82,000,000 was in line with market expectations for the quarter and 2.3% ahead of the prior year on a like for like basis. The growth in adjusted EBITDA on a like for like basis was driven by a very strong performance in our diversified Americas segment offsetting modest decreases in fresh fruit and diversified EMEA. Cash management and capital allocation continue to be a major focus for us and we are pleased to see our leverage reduced further driven by a $36,000,000 decrease in our absolute level of debt despite a relatively high level of capital investment made in the quarter, which we will discuss in more detail later on the call. Turning now to Slide 6 on our operational highlights and starting with the FreshCo segment. This segment delivered another good performance in the 3rd quarter.

Speaker 2

Adjusted EBITDA was $42,900,000 a small decrease compared to last year, but a result that was ahead of our own expectations, taking into account the higher shipping costs in the quarter due to the ongoing dry docking process that we flagged in our previous earnings calls. North America has been the market predominantly impacted by dry docking. However, we had a good overall performance with higher volumes of bananas sold and better pricing, partially compensating the anticipation of higher shipping costs. In the European market, we continued with our positive momentum, driven by higher volumes in bananas as well as by lower shipping costs. Looking ahead to the remainder of the year for both the North American and European markets, we believe we are well placed.

Speaker 2

Both banana and pineapple supply remain tight on an industry wide basis, leading to higher sourcing costs, but also allowing for some positive pricing momentum in certain markets. As the year has progressed, the benefits of our experienced team, our diversified supply base have been again been clear, allowing us to deliver a consistent, competitive and quality service to all our customers. Overall, we anticipate the Fresh Foods segment having a good end to the year, taking the plant a continued expectation of higher shipping costs during the dry docking process. Before turning our attention to the diversified segments, I would also like to highlight our recent agreement to expand our shipping fleet by bringing 2 vessels currently on charter under our own membership in early 2025 through an option to purchase agreement. Strategically, adding a second service to our U.

Speaker 2

S. East Coast operation this year with the 2 chartered vessels provides us the flexibility to drive up the vessels in our primary East Coast service without any major service disruption, but also gives us a pathway for additional growth in the marketplace. So moving on to the diversified EMEA segment. This segment was impacted by some seasonal timing differences as well as one off IT costs and a lower supply of certain categories in the quarter, but still delivered a good overall results in Q3, broadly in line with our own expectations. In Spain, we had some temporary shortages in supply of Canary Island Bananas, whereas in other parts of the segment, we had the continued impact of shortages for some important seasonal crops typically sourced out of South America as well as poor weather impacting trade for some of our foodservice and wholesale businesses.

Speaker 2

Positively, revenue did revenue growth did remain strong in the quarter, indicating that on an underlying basis, our business is in a good position, and we expect to be able to deliver a satisfactory result on a full year basis. Diversified Americas, this segment delivered another very strong quarter on a like for like basis, taking out the impact of Progressive Projects following its sale in Q1. The strong result was driven by a positive quarter for our North American operations with good volume and price growth across most commodities and avocados in particular. Our North American berry business was still having much scope to continue to improve, showed a good turnaround from the prior year. And while our South American export business also had a positive quarter with good developments in winter season products.

Speaker 2

Looking at the remainder of the year, activity will again pick up on the export side as we progress through Q4 with the start of several key export seasons of both Peru and Chile. As always, the specific timing of harvest will play an important role in how profitability gets recorded through the year end. However, we anticipate a strong seasonal performance on the export side as well as continued good momentum in our North American operations. Turning to the fresh vegetables business. As noted in our most recent calls since the termination of the sale of Green Refresh Express, we have been actively exploring strategic alternatives for this business.

Speaker 2

That process is ongoing and we remain hopeful that we will ultimately deliver a good outcome for all our stakeholders. Operationally, we are very pleased that this business is continuing to deliver improved results and is on track to deliver positive operating income each quarter of 2024. The continued good performance in the 3rd quarter was delivered despite the anticipated softening of the favorable fresh packed market conditions in the next few years earlier this year, demonstrating again the good underlying performance that our committed management team is making in both the fresh packed and value added business units within this division. And with that, I'll hand you over to Jacinta to give the financial review for the Q3.

Speaker 3

Thank you, Rory, and good day, everyone. Firstly, turning to the group results on Slide 8. Reported revenue increased 1% against the prior year and 5.8% on a like for like basis, excluding the impact of FX and the sale of Progressive Produce. Strong operational performance across all segments drove this growth. Adjusted EBITDA decreased 3.7 percent or £3,100,000 primarily driven by decreases in fresh fruit and diversified EMEA segments, partially offset by strong performance in the diversified Americas segment.

Speaker 3

On a like for like basis, adjusted EBITDA increased 2.3 percent or £1,900,000 Interest expense for our continuing and discontinued operations decreased £5,000,000 year on year due to lower debt levels and also lower market interest rates. The increase in income tax is due to changes in our jurisdictional profit mix compared to the prior year and the impact of discrete tax items in the period. Net income of £21,500,000 in Q3 2024 was £32,500,000 lower than Q3 2023, primarily due to the prior year having the benefit of an exceptional £28,800,000 gain on the sale of land. There was also a decrease in other income of £9,300,000 This was primarily related to fair value adjustments of financial instruments. Partially offsetting this was a continued improved performance in our fresh vegetable business, with income from discontinued operations of £6,300,000 recorded this quarter.

Speaker 3

On an adjusted basis, adjusted net income was £18,000,000 and adjusted diluted EPS was £0.19 per share. The year on year decrease was mainly due to lower adjusted EBITDA and higher income tax expense, partially offset by lower interest expense. Turning now to the divisional update for the Q3 for our continuing operations. Firstly, turning to the Fresh Fruit on Slide 10. The fresh fruit division delivered another good result with the revenue increasing 6.6%.

Speaker 3

The increase in revenue was primarily due to higher worldwide volumes of bananas sold, as well as higher worldwide pricing of bananas and pineapples, partially offset by lower worldwide volumes of pineapples and lower pricing and volume for plantains. As anticipated, adjusted EBITDA was lower this quarter due to the impact of drydocking related costs. However, the result of £42,900,000 was ahead of our expectations, primarily due to strong revenue growth. Turning to Diversified Fresh Produce EMEA on Slide 11. This segment delivered €5,100,000 revenue growth in the quarter, driven by a strong performance in Ireland, the UK and the Netherlands, as well as a €13,600,000 favorable FX impact and an incremental positive impact from acquisitions of €1,800,000 On a like for like basis, revenue increased 3.3%.

Speaker 3

Adjusted EBITDA declined 13.1% or 14.5% on a like for like basis, primarily due to higher one off IT charges in the UK and temporary supply issues and seasonal timing difference in Spain and South Africa. Finally, turning to diversified fresh produce Americas and rest of world on Slide 12. This segment delivered a very strong result in the quarter. Reported revenue was impacted by the sale of Progressive produce earlier this year. However, on a like for like basis, revenue increased 7.2%, primarily due to the volume and price growth across most commodities in North America.

Speaker 3

Adjusted EBITDA increased £3,600,000 primarily driven by improved performance in our North America berries business and positive margin development in avocados, as well as revenue growth across most commodities in North America. These positive impacts were primarily offset by the disposal of the Progressive produce business. On a like for like basis, adjusted EBITDA was £9,200,000 ahead of the prior year. Turning to Slide 13. We remain very focused on capital allocation and managing our leverage and are pleased that our leverage reduced further in the quarter to 1.86 times.

Speaker 3

The reduction was driven by a £36,000,000 decrease in our net debt compared to Q2. Net cash provided by operating activities from continuing operations was €106,200,000 in the year to date. As anticipated, we saw a significant positive inflow in working capital in the 3rd quarter. And while being conscious of the variability that seasonal timings around year end can bring to working capital, this is a trend we expect to continue into the year end. Cash capital expenditure from continuing operations was CHF 21,100,000 in the 3rd quarter.

Speaker 3

As Laurie mentioned, we recently secured an agreement to expand our fleet with the addition of 2 vessels currently on charter, bringing them under our ownership in early 2025. Due to this commitment, we have recognized a finance lease, adding both the asset and financial obligation to our balance sheet as at the 30th September. For the full year, after the opportunistic addition of these vessels, we now expect total capital expenditure, including additions by finance lease, to be in the range of £130,000,000 to £140,000,000 As I mentioned earlier, interest expense has continued to decrease compared with the prior year due to lower debt levels as well as lower base rates. For the full year, we now expect our interest expense, including discontinued operations, to be approximately £75,000,000 Continuing our commitment to return cash to shareholders, we are pleased to declare a dividend of £0.08 for the Q3, which will be paid on January 3, 2025 to shareholders on record on December 11, 2024. Now I will hand you back to Rory, who will give an update on our full year outlook.

Speaker 2

Thank you, Jacinta. So we're very pleased to have delivered another robust performance this quarter, putting us in an excellent position to deliver strong results for the full year. And as we move towards the end of the year, we are raising our full year adjusted EBITDA target to at least CHF380 1,000,000 for 2024. On the investment side, we are pleased that our disciplined approach to capital allocation has given us the flexibility to opportunistically execute quickly on a positive transaction this quarter to support our operations and bring 2 additional vessels into our fleet. As we move forward, we will continue with our disciplined approach to honor investment activity, while also ensuring that we have the capabilities and capacity to both execute on our planned strategic aims and any opportunistic opportunities for different possibilities in March.

Speaker 2

In conclusion, we're very pleased to have again added another good operating and financial performance to our track record and are now fully focused on finishing the year strongly and delivering on our enhanced full year target, while also focusing on our key strategic priorities for the remainder of the year. I do want to finish by once again thanking our excellent people across the group for their ongoing commitment and dedication to drive Dome plc forward as well as our suppliers and customers for all their ongoing support. So with that, I'll hand you back to the operator and we can open the line for questions. Thank you.

Operator

Thank you. We will now begin the question and answer session. Your first question comes from the line of Christopher Barnes with Deutsche Bank. Please go ahead.

Speaker 4

Hi, good morning, good afternoon. Thanks for the question. I guess just first to start on EBITDA guidance. The full year target of at least $380,000,000 implies the 4th quarter could be down 18% at the low end. I know you're really just setting a floor, but could you walk through the puts and takes that we should be mindful of across Fresh Fruit and the diversified businesses in the Q4 specifically?

Speaker 4

I know you called out strength from Peru and Chile export seasons as well as tighter banana supply conditions, but any additional color would be helpful. Thanks.

Speaker 2

Yes. I mean, I think as we flagged, Chris, at the end of half one, this may be a year that's more typical of the historical years where there's a heavier weighting towards the first half of the year compared to the second half of the year. You've got to remember as well that we sold Progressive so that was an impact on Q4 and overall full year impact on EBITDA up to £25,000,000 Forecasting, as we know, in today's world, there's far from an exact science. You just need to look at what happened with the dollar post the election with a quite strong improvement in the strength of the dollar with a strong finish to the year last year in 2023. We do know that our shipping costs in the back half of the year are going to be higher, particularly with the dry docking issues that we've got.

Speaker 2

But we're comfortable with setting the base at 3.80. We've stepped it up from 360, 370 and now 380. So putting everything into the mix, we think it's the appropriate number to give to the market.

Speaker 4

Very helpful. And then secondly, the Diversified Americas business profitability has been notably strong year to date, essentially masked the impact from divesting Progressive Produce. So is there any way to frame how much of that improvement is real underlying strength in that business versus some of the like seasonal timing that's shifting profitability around into the 1st 9 months? And then separately, Lunar New Year in 2025 is 2 weeks earlier than it was in 2024. Is that going to have any positive impact on the Q4 for Chilean cherries?

Speaker 4

Or is that really just a 2025 dynamic? And then I'll pass it on. Thanks.

Speaker 2

Yes. Thanks, Chris. Yes, I mean, if we look at the diversified Americas business, it's probably the segment that suffered most from you go right back to 2020, 2021 with the supply chain disruption, the logistics disruption, the very significant shortage of containers and the dramatic increase in freight rates sort of a very big impact on that segment. We had periods where we couldn't get product discharged into the North American market. So that's all settled down.

Speaker 2

I think we'd have to say as well within that division, particularly from Chile, instead of having lots of negative headwinds, we probably had a few tailwinds that are behind us, the flow of product in terms of the change of seasons from American production into import production has worked well. The flow of products from cherries into the Chinese market has worked well. We've done a lot of work in terms of improving the auto management processes and streamlining that organization and it's worked well. I think there can be a little bit of volatility. We do own a reasonable amount of production in Chile, so that can have that can be a little bit more variable than say RMA and division, which tends to be a more stable consistent profit level.

Speaker 2

But we're comfortable that we've repositioned that entire business, but they have had an exceptionally strong year this year. So it would be wrong not to recognize that and we've got to take it when it's there as well.

Operator

Your next question comes from the line of Gary Martin with Davy. Please go ahead.

Speaker 5

Hi, all. Congrats again on another strong set of results. I got a few questions on my side. I'll just ask them 1 by 1, if that's all right. I guess just starting off and maybe touching on the last question a little bit.

Speaker 5

I mean, should we expect maybe a more normalized cherry season into Q4? Is that the best way to frame it? And I guess the extension of that is should we expect a more normalized kind of diversified Americas and rest of world profitability and revenue into Q1 next year as well just off the back of that?

Speaker 2

Do you want to make any comment on that, Johan, maybe just to add what I already said?

Speaker 6

Yes. No, I think what you said is right. And when it comes to normalize, yes, when you look at Q1, you could probably say it normalized with some of the cherry volume falling into this year considering where the Chinese New Year is coming.

Speaker 5

Understood. That's helpful. And then just on fresh fruits, I mean, you've flagged a number of times that it was above your expectations. I mean, what are the kind of the supply and demand factors that are driving the kind of overall outperformance on volumes across both Europe and North America? And I guess if we if I put my forecasting hat on and I look into Q4, should we expect to see another fairly consistent quarter on a sequential basis

Speaker 2

in terms of profitability and revenue? Thanks. Do you want to address that as well, Johan, maybe?

Speaker 6

Yes. So as always, fresh fruit is very dynamic with a lot of puts and calls on it. So what we have right now and what we saw during Q3, we saw a very good and solid demand for bananas, driven by organic bananas, but also the normal bananas. Good demand and at the same time, we have a tight supply on the back of weather event. It's been drier up in drier in Ecuador, wetter in Central America and that's on the back of El Nino last year when it was vice versa.

Speaker 6

So the weather has tightened up the supply. So we have had a good supply demand balance because even if the supply is tight, it does not directly impact the core markets as it's normally to secondary markets that are taking the hit. But we're also selling some in the secondary market and there we have seen a tailwind and that has been beneficial to us and we do expect to see some of that benefit also in Q4, but we see it more consistent like a normalized year where we don't have the same benefit that we had last year that was very strong. And the reason for that being then shipping costs being higher, the Dolores and Cargo business when we sell it's based on our ships being a little bit lower and we have also seen some cost of fruit being a little bit higher as volume has been low on pines.

Speaker 5

That's really, really helpful. And then maybe just one final one, just on the 2 vessels that were previously chartered, just coming in, in early 2025. I mean, you outlined the greater flexibility when it comes to dry docking cycles, that makes perfect sense. Would you also touch on further growth potential? Do you want to maybe just go through in a bit more detail the potential growth upside there?

Speaker 2

Thanks. Yes. I mean, we did take the vessels on charter, short term charter, annual charter, really with a view to giving us the capacity flexibility given the dry docking programs. We found that with our increasing volumes that the excess by the extra capacity we believe will give us the capacity to grow. And there may be a couple of other areas where we can develop the volumes, just avocados a little bit more out of Colombia.

Speaker 2

We haven't put a specific number on that yet, Gary, but we do think that having the capacity to make sure that we fully comply with the very important service level requirements of our major North American retailers is very important. We've seen huge amount of volatility on freight rates over the course of the last 6 months, particularly with the Red Sea issues and the closure of the Suez Canal and having certainty about capacity of the right size ships, the right capacity, certainty on our trade lanes into the different markets. We think it's a strong advantage and will give us a strong position to grow over the course of the next number of years.

Speaker 5

That's really good color. I'll pass it on. Thanks so

Speaker 2

much. Thanks, Gary.

Operator

And we currently have no further questions in our queue. I will now turn the conference back over to Rory Byrne for closing comments.

Speaker 2

Thank you. Well, we're very pleased with the way 2024 has evolved. So I think it's another good quarter tied now to a very strong sequence of solid results over a sustained period of time. We've got a good focus on all areas of our business operationally, financially and strategically. So we believe we're very well positioned for continued growth.

Speaker 2

So thank you once again to all our committed people, our investors, our customers, suppliers and thank you for joining us today.

Operator

This concludes today's conference call. Thank you for your participation and you may now disconnect.

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