Log in
Log in
Or log in with
GoogleGoogle
Twitter Twitter
Facebook Facebook
Apple Apple     
Sign up
Or log in with
GoogleGoogle
Twitter Twitter
Facebook Facebook
Apple Apple     

FRESH DEL MONTE PRODUCE INC.

(FDP)
  Report
Real-time Estimate Cboe BZX  -  11:22 2022-09-30 am EDT
23.77 USD   +0.98%
09/15Fresh Del Monte Produce : Signs the Pacific Coast Food Waste Commitment to Tackle Food Waste on the West Coast
PU
08/16FRESH DEL MONTE PRODUCE INC. : Ex-dividend day for
FA
08/11Fresh Del Monte Produce : Makes Progress on Greenhouse Gas Reduction Goals; Hans Sauter Shares
PU
SummaryQuotesChartsNewsRatingsCalendarCompanyFinancialsConsensusRevisionsFunds 
SummaryMost relevantAll NewsOther languagesPress ReleasesOfficial PublicationsSector news

FRESH DEL MONTE PRODUCE INC Management's Discussion and Analysis of Financial Condition and Results of Operations (form 10-Q)

08/03/2022 | 03:40pm EDT

Overview


We are 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 marketer of prepared fruit and vegetables, juices,
beverages and snacks in Europe, Africa and the Middle East. We market our
products worldwide under the Del Monte® brand, a symbol of product innovation,
quality, freshness and reliability since 1892. Our major sales markets are
organized as follows: North America, Europe, the Middle East (which includes
North Africa) and Asia. Our global sourcing and logistics system allows us to
provide regular delivery of consistently high-quality produce and value-added
services to our customers. Our major producing operations are located in North,
Central and South America, Asia and Africa.

Our business is comprised of three reportable segments, two of which represent
our primary businesses of fresh and value-added products and banana, and one
that represents our other ancillary businesses.

•Fresh and value-added products - includes pineapples, fresh-cut fruit, fresh-cut vegetables (which includes fresh-cut salads), melons, vegetables, non-tropical fruit (including grapes, apples, citrus, blueberries, strawberries, pears, peaches, plums, nectarines, cherries and kiwis), other fruit and vegetables, avocados, and prepared foods (including prepared fruit and vegetables, juices, other beverages, and meals and snacks).

•Banana


•Other products and services - includes our ancillary businesses consisting of
sales of poultry and meat products, a plastic product business, and third-party
freight services.

Our vision is to inspire healthy lifestyles through wholesome and convenient products. Our strategy is founded on six goals:

                     [[Image Removed: fdp-20220701_g1.jpg]]

COVID-19 Pandemic and Current Economic Environment


In March 2020, the World Health Organization declared the outbreak of
coronavirus ("COVID-19") a global pandemic. The COVID-19 pandemic has negatively
impacted the global economy, disrupted global supply chains and created
significant volatility and disruption of financial markets. These factors have
resulted in inflationary and cost pressures that have significantly increased,
and continue to adversely impact, our production and distribution costs,
including costs of packaging materials, fertilizer, labor, fuel, and ocean and
inland freight. We are also experiencing pressure on our supply chain due to
strained transportation capacity and lack of sufficient labor availability. In
addition, the invasion of Ukraine by Russia in early 2022 has led to further
economic disruption. While we do not operate in Ukraine and while our operations
in Russia are not material, the conflict has exacerbated inflationary cost,
supply chain and logistical pressures which have negatively impacted the global
economy and our business.


                                       24

--------------------------------------------------------------------------------

Table of Contents


In response to these ongoing inflationary and cost pressures, we began
instituting price increases on the majority of our products during the latter
part of 2021. Additionally, certain of our contracts for key products include
contractually indexed fuel and freight surcharges that vary depending on
commodity pricing. While we expect that these inflation-justified price
increases and surcharges will continue to help mitigate our increased costs, our
gross profit continues to be negatively impacted by these unfavorable market
conditions as reflected in our financial results for the first six months of
2022. We believe these factors will continue to impact our financial performance
in future periods.

The recent events surrounding the global economy and COVID-19 pandemic continue
to evolve. Although we believe that we will ultimately emerge from these events
well positioned for long-term growth, uncertainties remain and, as such, we
cannot reasonably estimate the duration or extent of these adverse factors on
our business, operating results, and long-term liquidity position.

Optimization Program


During fiscal 2020, we performed a comprehensive review of our asset portfolio
aimed at identifying non-strategic and underutilized assets to dispose of while
reducing costs and driving further efficiencies in our operations (hereon
referred to as the "Optimization Program"). As a result of the review, we
identified assets across all of our regions, primarily consisting of
underutilized facilities and land, which we made a strategic decision to sell
for total anticipated cash proceeds of approximately $100.0 million. As of
July 1, 2022, we have received cash proceeds of $63.3 million in connection with
asset sales under the Optimization Program (approximately $57.0 million of which
was received during fiscal years 2020 and 2021). Due to challenging market
conditions which have resulted in delays of some of the asset sales, in part
driven by COVID-19 travel restrictions, the completion of the program has
extended beyond the originally anticipated timeframe of the first quarter of
2022.

Income Taxes

In connection with the examination of the tax returns in two foreign
jurisdictions, the taxing authorities have issued income tax deficiencies
related to transfer pricing aggregating approximately $138.3 million (including
interest and penalties) for tax years 2012 through 2016. We strongly disagree
with the proposed adjustments and have filed a protest with each of the taxing
authorities as we believe that the proposed adjustments are without technical
merit.

In one of the foreign jurisdictions, we are currently contesting tax assessments
related to the 2012-2015 audit years and the 2016 audit year in both the
administrative court and the judicial court. During 2019 and 2020, we filed
actions contesting the tax assessment in the administrative office. Our initial
challenge to each of these tax assessments was rejected, and we subsequently
lost our appeals at the administrative court. We have subsequently filed actions
to contest each of these tax assessments in the country's judicial courts. In
addition, we have filed a request for injunction to the judicial court to stay
the tax authorities' collection efforts for these two tax assessments, pending
final judicial decisions. The court granted our injunction with respect to the
2016 audit year, however denied our injunction with respect to the 2012-2015
audit years. We timely appealed the denial of the injunction, and an appellate
hearing has been set for August 2022. In the interim, the appellate court has
stayed the tax collection action until the August hearing. Pursuant to local
law, we registered real estate collateral with an approximate fair market value
of $5.7 million in connection with the grant of the 2016 audit year injunction.
This real estate collateral has a net book value of $4.1 million as of the
quarter ended July 1, 2022. To the extent that our appeal of the injunction for
the 2012-2015 audit years is granted and the tax authorities collection efforts
are enjoined, we estimate that additional collateral of approximately
$25.0 million would be required to be posted. The registration of this real
estate collateral does not affect our operations in the country.

In the other foreign jurisdiction, the administrative court denied our appeal,
and on March 4, 2020 we filed an action in the judicial court to contest the
administrative court's decision. The case is still pending.

We will continue to vigorously contest the adjustments and to exhaust all administrative and judicial remedies necessary in both jurisdictions to resolve the matters, which could be a lengthy process.

                                       25

--------------------------------------------------------------------------------

Table of Contents

RESULTS OF OPERATIONS

Consolidated Financial Results


The following summarizes the more significant factors impacting our operating
results for the 13-week and 26-week periods ended July 1, 2022 (also referred to
as the "second quarter of 2022" and "first six months of 2022," respectively)
and July 2, 2021 (also referred to as the "second quarter of 2021" and "first
six months of 2021," respectively).

                                                     Quarter ended                       Six months ended
                                              July 1,            July 2,            July 1,            July 2,
                                                2022               2021               2022               2021
Net sales                                   $ 1,211.9          $ 1,141.6          $ 2,348.9          $ 2,229.9
Gross profit                                     80.7              110.0              170.5              215.1
Selling, general and administrative              47.3
expenses                                                            51.4               92.5              100.3
Operating income                                 34.3               59.3               74.1              119.0



Net sales - Net sales for the second quarter of 2022 increased by $70.3 million,
or 6%, when compared with the second quarter of 2021, and increased by $119.0
million, or 5%, for the first six months of 2022 when compared with the first
six months of 2021. In both periods, net sales benefited from
inflation-justified price increases. Partially offsetting the increase in net
sales was the negative impact of fluctuations in exchange rates primarily versus
the Japanese yen and euro compared with the prior-year periods. The negative
impact of fluctuations in exchange rates was partially mitigated by our foreign
currency hedges.

Gross profit - Gross profit for the second quarter of 2022 was $80.7 million
compared with $110.0 million in the prior-year period, and $170.5 million in the
first six months of 2022 compared with $215.1 million in the prior-year period.
In both periods, despite higher net sales, gross profit continued to be
negatively impacted by broad-based inflationary, supply chain, and logistical
pressures compared to the prior-year. Higher costs across the board, including
costs of packaging materials, fertilizers, ocean and inland freight, fuel and
labor, offset our higher net sales.

Selling, general and administrative expenses - Selling, general and
administrative expenses decreased by $4.1 million, or 8%, in the second quarter
of 2022 when compared with the second quarter of 2021, and decreased by $7.8
million, or 8%, in the first six months of 2022 when compared with the first six
months of 2021. The decrease in both periods was primarily due to lower
administrative and advertising expenses in the current year.

Gain (loss) on disposal of property, plant and equipment, net - The gain (loss)
on disposal of property, plant and equipment, net of $1.6 million during the
second quarter of 2022 primarily related to a gain on the sale of vacant land in
Mexico. For the first six months of 2022, gain (loss) on disposal of property,
plant and equipment, net of $(2.2) million also included a loss on the disposal
of low-yielding banana plants in Central America. The gain (loss) on disposal of
property, plant and equipment, net of $1.1 million during the second quarter of
2021 primarily related to a gain on the sale of vacant land in the Middle East,
while the first six months of 2021 also included a gain on the sale of a
refrigerated vessel.

Asset impairment and other charges (credits), net - Asset impairment and other
charges (credits), net of $0.7 million during the second quarter of 2022
primarily consisted of severance expense associated with the planned exit from a
European facility. For the first six months of 2022, asset impairment and other
charges (credits), net of $1.7 million also included severance expense in
connection with the departure of our former President and Chief Operating
Officer. Asset impairment and other charges (credits), net of $(0.4) million for
the first six months of 2021 primarily related to an insurance recovery
associated with hurricane damage to fixed assets in Central America.

Operating income - Operating income decreased by $25.0 million in the second
quarter of 2022 and by $44.9 million in the first six months of 2022 when
compared with the respective prior-year periods. The decrease in operating
income in both periods was primarily driven by lower gross profit, partially
offset by lower selling, general, and administrative expenses. The decrease for
the first six months of 2022 compared with the first six months of 2021 was also
partially driven by the net impact of disposals of property, plant, and
equipment.

Interest expense - Interest expense was higher in the second quarter and first
six months of 2022 when compared with the prior-year periods, primarily due to
higher interest rates and higher average debt balances.

                                       26
--------------------------------------------------------------------------------
  Table of Contents
Other expense, net - Other expense, net increased by $1.0 million in the second
quarter of 2022 when compared with the second quarter of 2021, mainly due to
higher foreign exchange losses. For the first six months of 2022, other expense,
net increased by $3.0 million when compared with the first six months of 2021,
primarily as a result of the prior-year period including a gain related to fuel
derivatives that were no longer designated as hedging instruments.

Income tax provision - Income tax provision was $4.9 million for the second
quarter of 2022 compared with $4.8 million for the second quarter of 2021. The
income tax provision for the second quarter of 2021 reflected the impact of
return-to-provision adjustments related to a change in estimate which included a
$0.8 million benefit associated with the net operating loss carryback provision
of the Coronavirus Aid, Relief and Economic Security (CARES) Act enacted in
March 2020. Income tax provision for the first six months of 2022 decreased to
$10.7 million from $15.8 million in the first six months of 2021, primarily due
to decreased earnings in certain higher tax jurisdictions.

Financial Results by Segment


The following table presents net sales and gross profit by segment (U.S. dollars
in millions), and in each case, the percentage of the total represented thereby
and gross margin percentage:

                                                                                                          Quarter ended
                                                              July 1, 2022                                                                             July 2, 2021
 Segment                            Net Sales                        Gross Profit                Gross Margin                Net Sales                        Gross Profit                Gross Margin
Fresh and value-added
products                   $   732.4             60  %       $      49.4             61  %             6.7  %       $   674.0             59  %       $      58.3             53  %             8.7  %
Banana                         421.6             35  %              22.2             28  %             5.3  %           426.7             37  %              48.1             44  %            11.3  %
Other products and
services                        57.9              5  %               9.1             11  %            15.6  %            40.9              4  %               3.6              3  %             8.9  %
Totals                     $ 1,211.9            100  %       $      80.7            100  %             6.7  %       $ 1,141.6            100  %       $     110.0            100  %             9.6  %

                                                                                                        Six months ended
                                                              July 1, 2022                                                                             July 2, 2021
                                    Net Sales                        Gross Profit                Gross Margin                Net Sales                        Gross Profit                Gross Margin
Fresh and value-added
products                   $ 1,405.1             60  %       $      93.8             55  %             6.7  %       $ 1,305.0             59  %       $     110.6             51  %             8.5  %
Banana                         827.6             35  %              60.0             35  %             7.2  %           844.9             38  %              98.0             46  %            11.6  %
Other products and
services                       116.2              5  %              16.7             10  %            14.4  %            80.0              3  %               6.5              3  %             8.1  %
Totals                     $ 2,348.9            100  %       $     170.5            100  %             7.3  %       $ 2,229.9            100  %       $     215.1            100  %             9.6  %


Second Quarter of 2022 Compared with Second Quarter of 2021

Fresh and value-added products


Net sales for the second quarter of 2022 increased by $58.4 million, or
approximately 9%, when compared with the prior-year period. The increase in net
sales was primarily driven by higher pricing in most product categories. Sales
volume remained in line with the prior-year period.

Gross profit for the second quarter of 2022 was $49.4 million compared with
$58.3 million in the second quarter of 2021. The decrease in gross profit from
the prior-year period was mainly due to lower gross profit on non-tropical
fruit, primarily driven by the lack of availability of third-party shipping
capacity on certain shipping routes, and lower gross profit on avocados, mainly
due to market volatility. Additionally, despite higher net sales, gross profit
continued to be negatively impacted by ongoing cost pressures in the current
year period which resulted in higher per unit production and distribution costs,
including ocean and inland freight. As a result, gross margin decreased to 6.7%
compared with 8.7% in the prior-year period.

Gross profit in the fresh and value-added products segment included $1.6 million
of other product-related charges in the second quarter of 2021, mainly comprised
of a $1.3 million inventory write-off incurred in the Middle East. There were no
other product-related charges in the second quarter of 2022.
                                       27

--------------------------------------------------------------------------------

Table of Contents

Banana


Net sales for the second quarter of 2022 decreased by $5.1 million, or 1%, when
compared with the prior-year period. The decrease in net sales was primarily
driven by lower sales volume and the negative impact of fluctuations in exchange
rates in Asia.

Gross profit for the second quarter of 2022 was $22.2 million compared with $48.1 million in the prior-year period. The decrease in gross profit was primarily driven by higher per unit distribution costs, including ocean and inland freight, and higher per unit production costs. As a result of these factors, gross margin decreased to 5.3% compared with 11.3% in the prior-year period.


Other products and services

Net sales for the second quarter of 2022 increased by $17.0 million, or 42%,
when compared with the prior-year period mainly due to higher net sales of
third-party freight services. Our fleet of vessels has enabled the expansion of
our commercial cargo services, which are benefiting from elevated shipping rates
and demand due to market logistical constraints.

Gross profit increased by $5.5 million as a result of higher net sales of third-party freight services. Gross margin increased to 15.6% from 8.9% in the prior-year period.

First Six Months of 2022 Compared with First Six Months of 2021

Fresh and value-added products


Net sales for the first six months of 2022 increased by $100.1 million, or
approximately 8%, when compared with the prior-year period. The increase in net
sales was primarily driven by higher pricing in most product categories. Sales
volume remained in line with the prior-year period.

Gross profit for the first six months of 2022 was $93.8 million compared with
$110.6 million in the prior-year period. The decrease in gross profit compared
with the prior-year period was mainly due to lower gross profit on (i)
non-tropical fruit, primarily driven by the lack of availability of third-party
shipping capacity on certain shipping routes, (ii) avocados, mainly related to
market volatility, and (iii) melons. Additionally, despite higher net sales,
gross profit for the segment continued to be negatively impacted by ongoing cost
pressures which resulted in higher per unit production and distribution costs,
including ocean and inland freight. As a result, gross margin decreased to 6.7%
compared with 8.5% in the prior-year period.

Gross profit in the fresh and value-added products segment included $4.7 million
of other product-related charges in the first six months of 2021 comprised of
$3.4 million in non-tropical fruit inventory write-offs related to inclement
weather in Chile in the first quarter of 2021, and a $1.3 million inventory
write-off incurred in the Middle East. There were no other product-related
charges in the first six months of 2022.

Banana

Net sales for the first six months of 2022 decreased by $17.3 million, or 2%, when compared with the prior-year period. The decrease in net sales was primarily driven lower sales volume in North America and Asia. In Asia, net sales were also negatively impacted by fluctuations in exchange rates. The decrease in net sales was partially offset by higher per unit sales prices.


Gross profit for the first six months of 2022 was $60.0 million compared with
$98.0 million in the prior-year period. The decrease in gross profit was
primarily driven by lower sales volume and higher per unit production and
distribution costs, including ocean and inland freight. As a result of these
factors, gross margin decreased to 7.2% compared with 11.6% in the prior-year
period.

Gross profit for the banana segment included a $1.2 million net insurance recovery in the first six months of 2021 associated with hurricane damage in Central America in the fourth quarter of 2020. There were no other product-related charges in the first six months of 2022.

                                       28

--------------------------------------------------------------------------------

  Table of Contents


Other products and services

Net sales for the first six months of 2022 increased by $36.2 million, or 45%,
when compared with the prior-year period mainly due to higher net sales of
third-party freight services. Our fleet of vessels has enabled the expansion of
our commercial cargo services, which are benefiting from elevated shipping rates
and demand due to market logistical constraints.

Gross profit increased by $10.2 million as a result of higher net sales of third-party freight services. Gross margin increased to 14.4% from 8.1% in the prior-year period.

Liquidity and Capital Resources


Fresh Del Monte Produce Inc. is a holding company with limited business
operations of its own. Fresh Del Monte Produce Inc.'s only significant asset is
the outstanding capital stock of our subsidiaries that directly or indirectly
own all of our assets. We conduct all of our business operations through our
subsidiaries. Accordingly, our only source of cash to pay our obligations, other
than financings, depends primarily on the net earnings and cash flow generated
by these subsidiaries.


Our primary sources of cash flow are net cash provided by operating activities
and borrowings under our credit facility. Our primary uses of net cash flow are
capital expenditures to increase and expand our product offerings and geographic
reach, investments to increase our productivity and investments in businesses
such as Mann Packing.


A summary of our cash flows is as follows (U.S. dollars in millions):

© Edgar Online, source Glimpses

All news about FRESH DEL MONTE PRODUCE INC.
09/15Fresh Del Monte Produce : Signs the Pacific Coast Food Waste Commitment to Tackle Food Was..
PU
08/16FRESH DEL MONTE PRODUCE INC. : Ex-dividend day for
FA
08/11Fresh Del Monte Produce : Makes Progress on Greenhouse Gas Reduction Goals; Hans Sauter Sh..
PU
08/03Fresh Del Monte Produce : Quarterly Report for Quarter Ending July 01, 2022 (Form 10-Q)
PU
08/03FRESH DEL MONTE PRODUCE INC Management's Discussion and Analysis of Financial Conditio..
AQ
08/03Transcript : Fresh Del Monte Produce Inc., Q2 2022 Earnings Call, Aug 03, 202..
CI
08/03Fresh Del Monte Produce Reports Lower Q2 Adjusted Earnings, Higher Revenue
MT
08/03Del Monte : Q2 Earnings Snapshot
AQ
08/03Fresh Del Monte Produce : Reports Strong Second Quarter 2022 Net Sales Amidst Unprecedente..
PU
08/03Earnings Flash (FDP) FRESH DEL MONTE PRODUCE Reports Q2 EPS $0.43
MT
More news