DMC (DMC) Q3 2026 Earnings Report, Transcript and Summary

Hello, everyone. Thank you for joining us, welcome to the Del Monte Corporation Third Quarter 26 Financial Results Conference Call. After today's prepared remarks, we will host a question-and-answer session. To withdraw your question, press 1 again. I will now hand the conference over to Christine Cannella, Vice President, Investor Relations. Christine, please go ahead.

Thank you, Trevor. Good day, everyone. And thank you for joining our third quarter 26 conference call. Joining me for today's discussion are Mr. Mohammad Abu Ghazali, chairman and chief executive officer and Ms. Monica Vicente, senior vice president and chief financial officer. I hope that you have had a chance to review the press release, that was issued earlier via Business Wire. You may also visit the company's IR website at investorrelations.freshdelmonte.com to access today's earnings materials. And to register for future distributions. 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 measures. Reconciliations of these non GAAP financial measures are set forth in the press release and investor supplemental slide deck which is available on our website. I would like to remind you that much of the information we will be speaking to today, including the answers we give in response to your questions may include forward looking statements within the safe harbor provisions of the federal securities laws. In today's press release and in our SEC filings, we detail risks that may cause our future results to differ materially from these forward looking statements. Our statements are as of today, October 28, 2026, 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 financial results. Followed by a question-and-answer session. With that, I will turn today's call over to Mr. Mohammad Abu-Ghazaleh.

Please go ahead, sir.

Thank you, Christine. Good morning, everyone, and thank you for joining us. When we acquired Del Monte Foods earlier this year, we saw an opportunity to do much more than expand our portfolio. We saw the potential to bring together the strengths of 2 iconic businesses that had operated separately for decades. Creating a stronger foundation for long term growth. Today, with our second full quarter of the expanded portfolio behind us, that opportunity is big. Beginning to take shape. Our third quarter performance reflects the contribution of our Foods business and the progress that we are making toward building a stronger more diversified company while our fresh operations continue to navigate a challenging global environment, foods, is broadening our earnings base and adding greater balance to our business. But what is most important to me is not simply what the acquisition is contributing today. It is what these businesses can accomplish together. For the first time, we can fully connect our agricultural expertise global infrastructure, manufacturing capabilities, and the strength of the Del Monte brand under 1 strategy. And we believe that this creates opportunities for growth that neither business could have pursued as effectively on its own. An important part of realizing that potential is strengthening the foundation of our food business. Where our teams have made significant progress in a relatively short period of time. Customer churn rates have improved from 87% in the prior year period to approximately 98% ahead of the upcoming holiday season. Representing our best improved service levels and helping restore confidence among the retail partners in our Del Monte Foods division. These improvements reinforce our confidence in the underlying strength of the business and the Del Monte brand. We hold strong positions in our core categories. Including approximately 25% market share in canned vegetables and in refrigerated fruit. And importantly, we have plans in place to leverage the capabilities of our--of our integrated company to build on those positions through innovation and growth. Beyond the progress we are making in our foods division, what truly distinguishes Del Monte Corporation is the combination of 5 complementary strengths that we believe position us well competitively. This include our global pineapple franchise, fresh cut capabilities, the unified Del Monte brand, our vertically integrated supply chain, and a global shelf stable manufacturing platform. Individually, these are valuable assets. Our food business can fully leverage our global agricultural sourcing fresh and frozen processing capabilities, and broader resources. At the same time, our fresh business has new opportunities to extend into additional product categories, formats, and consumer occasions. Our long term growth strategy is built around making the most of these complementary strengths guided by our new North Star created by this union. More servings, more consumers, more occasions. Our ambition is to make fruits and vegetables a greater part of consumers' everyday lives with consumption remaining below recommended levels worldwide. We see a tremendous opportunity to put our unique capabilities to work making nutritious foods more accessible, convenient, and relevant to consumers everywhere. Innovation will be central to realizing that opportunity. We are developing an ambitious pipeline of products. With new formulations, modern packaging, and convenient formats designed to attract younger consumers while continuing to serve the households that have trusted Del Monte for generations. We currently anticipate initial launches of the first products beginning in the second half of 2027, and throughout 2028. As we expand our prepared foods business and introduce higher value products. We see opportunities to improve our sales mix and support margin expansion. While remaining disciplined in how we invest. We have a clear vision for the future, a remarkable team, and the capability to take Del Monte to its next chapter. There is still much work ahead, but I have tremendous confidence in the direction we are taking. Our history is what brought us here. What we build altogether will define our future. Thank you for your continued interest in Del Monte Corporation. With that, I will turn it over to Monica Vicente, our chief financial officer to discuss our financial results. Monica?

Thank you, Mr. Abu-Ghazaleh, and good morning, everyone. Before I review our third quarter results, I want to focus on 3 priorities that continue to shape our performance. Advancing the integration and financial contribution of Del Monte Foods, improving returns across our global operating network, and maintaining disciplined capital allocation as we invest for growth and strengthen cash generation. Together, these priorities are improving operating efficiency, expanding our margin potential, and strengthening the Del Monte portfolio across fresh and prepared foods. Starting with Del Monte Foods. The third quarter marked 6 full months of ownership. Integration continues to progress well. And we remain on track to deliver approximately $9 million of annual margin expansion through the pricing portfolio and trade spend initiatives discussed last quarter. We are increasing our outlook for net sales to approximately $650 million and adjusted EBITDA to approximately $45 million up from our previous expectations of $625 million and $35 million respectively. This increase reflects stronger than expected performance to date. Our integration work remains focused on procurement, logistics, commercial execution, and trade spend efficiency. These actions are designed to expand margins and strengthen cash generation. Across our global fresh platform, we continue to take decisive actions to build a more agile and cost effective production network. In Costa Rica, we advanced the previously announced closure of banana farms, and continues repurposing a significant portion of the land to expand production of our premium pineapple varieties. Therefore shifting resources toward higher return opportunities and strengthening returns over time. Turning to our third quarter financial performance. Net sales were $1.1 billion an increase of 7% year over year. Adjusted net sales increased by 14%. Gross profit increased 27% to $103 million significantly outpacing sales growth. Gross margin was 9.4% and expansion of 150 basis points. Adjusted operating income was $35 million, adjusted net income attributed to Del Monte Corporation was $24 million and adjusted diluted EPS was $0.50. Adjusted EBITDA increased 5% to $61 million representing a margin of 5.6%. The prepared foods segment delivered a 17.5 gross margin. The highest among our reportable segments, and contributed meaningful scale and profitability during the quarter. In our global fresh platform, favorable pricing across portions of the portfolio partially offset lower volume in certain categories, and higher production, procurement, freight, distribution, and fuel cost. Results also reflected adverse currency movements primarily from the stronger Costa Rica colon. Against that backdrop, we are focused on 3 areas. First, we are optimizing supply and logistics by realigning our production and distribution network to improve asset utilization lower cost, and expand margins. Second, we are focused on improving returns on our product directing capital and operating resources toward premium products, and opportunities with the strongest potential to generate earnings and cash. Third, we are advancing pricing, sourcing, and productivity by maintaining pricing discipline, expanding sourcing flexibility, and protecting service levels for our customers. Turning now to capital allocation and our full year outlook. Net cash provided by operating activities for the first 9 months was $53 million which supported integration, strategic inventory buildup, and working capital requirements while preserving financial flexibility. We continue to expect full year capital expenditures of $85 million to $95 million focused on integration, productivity, premium fresh capacity, fresh cut growth in Europe, and technology enabled efficiency. On shareholder returns, our board declared a quarterly cash dividend of $0.30 per share or $1.20 annualized. Payable on 12/04/2026 to shareholders of record as of 11/11/2026. Looking at our full year 2026 outlook. We are reiterating our outlook for an adjusted net sales growth of 13% to 15%. And adjusted EBITDA of approximately $230 million to $240 million We continue to expect gross margins of 11% to 12% for fresh and value added products. 14% to 15% for prepared foods, and 10% to 11% for other products and services. Consistent with our prior outlook. For bananas, we now expect full year gross margins of 2% to 3%. Compared with our prior expectation of 3% to 4%. The revision reflects weather related volume impact production costs, distribution, and currency pressures. Bananas remain strategically important to our integrated fresh platform. And we are addressing the factors within our control through footprint optimization, pricing, and sourcing to build a more efficient business with stronger long term economics. We now expect full year inflationary pressures of approximately $55 to $65 million with more than half impacting bananas. The primary drivers are higher fuel and energy costs, foreign currency movements, including the Costa Rica colon, and fertilizer and other raw material costs. Weather related impacts associated with El Nino conditions ongoing geopolitical instability have contributed to the cost pressures during the year. Despite these pressures, we continue to expect adjusted net sales and adjusted EBITDA within our previously communicated ranges. And are addressing them through pricing discipline sourcing flexibility, and network actions. In summary, the quarter provides clear evidence that our strategy is working. Del Monte Foods' performance to date has exceeded our initial outlook. And we are reallocating resources toward higher return opportunities across our global fresh platform. We believe these actions are creating a more balanced Del Monte, with stronger earnings and cash generation potential. That concludes my remarks. Operator.

We will now begin the question-and-answer session. If you would like to ask a question, please press 1 to raise your hand. To withdraw your question, press 1 again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Our first question comes from the line of Mitchell Pinheiro with Sturdivant & Company. Mitchell, your line is open.

Hey. Good morning.

Good morning.

So Mohammad, what I wanted to ask was this first is obviously on Del Monte Foods, your acquisition. You have had it for 6 months. And you talked a little bit about your learnings and the integration, but I am just curious if you could just dive a little deeper into what you have learned what maybe new potential you know, growth avenues that maybe you did not or were not aware of when you first purchased it? I would like to know where you are in the integration. Are we in the early stages? Or, you know, how far along are we And if you would be, willing to share perhaps where you think the gross margins could be you know, as you look out when you are sort of fully integrated?

I think all in all, Mitchell, we really overshot our expectation. You know, that were expecting that it will take us longer to integrate, that it will ease you know, with so much barrier or difficulties. Fortunately, you know, this not been the case. We really integrated our businesses much more rapidly than anticipated. Anticipated as well as the kind of integration between the fresh and the interrelationship between the fresh and the food was really quite smooth and constructive. Would say. So our 2 divisions, I would say, work together in a very, very fluid and effective way. that is on the integration where we are very, very satisfied with the way going. I can say that we are almost 60% or more in that road. We have little more to you know, in terms of utilizing our and maximizing that potential where we have a lot of room to improve As far as the. Like I mentioned in my script, there is so many new offerings that will be coming the market in the next 6 to 7 months, you know, which will make a huge significant addition to the portfolio that we have right now. And most importantly, really, is leveraging our fresh with the food. You know? There would be new, like pineapple, pink that will go into the fresh produce, you that fruit category where I mentioned that we hold about 90% market share into that area. that is where we are focusing now We are very strong into grapefruit and oranges. You know? If you see it in the retail shops all over the place, are going to be going hopefully in a few months, into the pineapple as well, the gold as well as the pink. And this will be really significant in terms of value and penetration in the market. So we have so many other as well, which we cannot disclose at this time. But they will be coming throughout 2027 and 2028 We are extremely confident. We are extremely encouraged and excited actually about the potential that we will create by through the combination of food and fish together to cross merchandise, cross promote, and enter, you know, in a different format. We are right now and consider ourselves as a consumer goods company, rather than a fresh fruit or produce company. I am not thinking anymore that we are a fresh produce only fresh produce company. We are a consumer goods company with 2 divisions. 1 is fresh and 1 is food. And each supplement and support the other. that is how we look at the businesses today.

And then, Mitchell, on your question about margins, we find that these products are.

Have very strong margins. So we do expect our margins to be in the mid to low 20% for those products.

K. And then and then speaking of margin and relating that, to the your full year outlook, You know, if you are talking prepared foods as a gross margin target. For the full year of 14% to 15%. And you came in, your first quarter of ownership, you had almost 19%, and then this past quarter was, 17.5. You know, excellent margins. But if for it to drop, to that 14 to 15 for the full year, we would see it would have to have a meaningful falloff in Q4. Am I calculating that correct? Or is there something that you are factoring in that we are unaware of?

We are factoring this. Where we are going. The environment we are in today with the increased cost every day, you know, that happening, you know, on steel, on fuel, on everything that you can think of. So we do not know what is going to happen even next week or next month. So we need to be kind of you know, cautious in terms of our expectation. You know, hopefully, that would be better than what we expect.

And to add to that, remember that our sales in the fourth quarter due to the holiday season on the food product. Our sales increased significantly, but so does our trade spend. So that dilutes our margin a little bit, so that is part of it.

Okay. And then you know, and related to Del Monte Foods, the inventories, you know, are went up in the quarter. And I am curious when that inventory build unwinds, how does that unwind? Into the fourth quarter and then, I guess, into the first quarter of next year?

Which inventory? The 1 that we got from the state, or you talk about the new inventory?

The new. The know, your. You build inventories, you know, during the growing season.

Yeah. So at the end of the week, we were as of Q3, we are almost done. Season for foods. We actually accumulated less inventory than expected. We do have, you know, co manufacturers that hold some of our inventory. That was positive on our on our debt as well. If you look at our working capital and debt, it better than we expected. So we Right. We just finished We are almost done with the tax season in the summer now. And, obviously, those sales will come in Q4. it is it is a big, sales quarter. Through, you know, the rest of the year until our pack season starts again next year. Okay.

Moving on just to the bananas. You know, you know, obviously, you talked Mohammad, that it is obviously an integral part of your business and you are working to you know, sort of improve the margins. But, I mean, at some point, a 2% to 3% gross margin I mean, that is not sustainable, obviously. And you know, you. You are you are you are getting rid of underproductive farms. And you are avoiding underproductive contracts. Low margin, zero margin contracts. Is there is there growth in bananas under those circumstances? Or you know, how should we think about the Banana business? And even as I know we are not talking 2027, but and I know you have experienced a lot of, you know, fuel and the Black Sigatoka, you know, your cost to combat that. But does 2027 normalize? Or are we in the new normal for bananas?

No. I think 2027 is going to be kind of a turning point in terms of bananas because like you just said, it is not sustainable for any grower. I mean, for any marketer. I would say the grower they are making, you know. I mean, the prices for even the growers have increased by $0.56 even $1 more to buy bananas from third party growers for this coming year. So banana on the on the market is not cheap it is not being. I mean, it is not going down. Cost of bananas is increasing. The grower is demanding more money. And the marketers are paying more money. When I say marketers, I mean the peep. You know, the companies that are distributing this fruit and North America or elsewhere. In our case, when know, our business, like I mentioned earlier, our business now, we consider the company as a consumer goods company. So our focus will be more on the profitability rather than just volume and revenue. Bananas will become, over the years, Mitchell, a very small portion of our total let's say, our total pie. So it will not be the determining factors for our profitability, for our growth, and our future plans. Now in my opinion, bananas cannot stay and cannot be sustainable at this at this prices, at this level. And if you look at press releases a few days ago, Chiquita has made, I think, a letter today to their customers and retailers seeing that with the cost with the cost structure, with the market conditions, you know, be it on the climate side, be it on the market conditions, the cost, pressure, you know, in terms of packaging and others. This business cannot be sustained. So I believe that every marketer, every company that is trading bananas today realize that fact And it is a choice whether they want to survive or, go under if they continue on the same path. These prices in the market cannot be sustainable We, as a company, Del Monte Corporation, we are not going to be I mean, driven by such forces because we are determined to make a reasonable decent margin on our bananas. So we are we are our ambition. You know, our direction and objective is to improve our margins.

K. I had just 2 more questions. 1, I did not see your. You have not seen your 10 Q yet, but I was curious how your fresh cut fruit business performed And yeah, that would be helpful.

Sure. Alright. So fresh cut fresh cut for the quarter, we did see some lower volume We are impacted somewhat by less traffic in the fresh produce area. But the, you know, there is. Obviously, the sale price was strong, but it was definitely impacted by lower volume. And the additional cost of inland transportation, production, everything, you know, as we said, the inflationary cost pressures hit all our products. So margins were a little bit lower than last year. But pricing was strong. Okay.

And then lastly, I saw that you received cash at third. About $30 million distribution from a consolidated unconsolidated companies. I was curious, what that may have represented.

Well, that was in Q1.

Oh, that was in Q1. Okay. I. Okay. You too. it is due to date. Yeah. We had an investment in a fund that exited an. A company that they were invested in, and that was our profit. So quite a good investment. Okay. I am sorry. I did not see that in the Q2. I did not see that there. But. Okay. that is all for me.

Thank you, Mitchell.

Our next question comes from the line of Anthony Lebiedzinski with Sidoti & Co., LLC. Anthony, your line is open.

Thank you and good morning everyone. Thanks for taking the questions. So just wanted to follow-up on the bananas. As far as the closure of the 4 farms in Costa Rica, will that have any meaningful improvement on margins heading into next year? Or how do we think about that as far as perhaps helping out the profitability for bananas to just that initiative alone?

it is part of our total effort to improve our margins, you know. I mean, these firms were losing money year after year. You know, I mean, we were just producing bananas, selling them, and incurring losses. So it is it is by, you know, it is logically that if we close these farms, we stop the bleeding and the hemorrhage on these on these farms. That means an improvement in our total, let's say, bottom line. However, like I said earlier to Mitchell that our intention is to improve our margins. We are not in the in the business to lose money on bananas, so that would be our direction. Monica, do you have anything else?

I definitely will improve margins. that is the reason why we are doing this. But there is got to be a lot of other things that happen. Right? To make sure our margins go back to an acceptable level. And pricing is 1 of the most important ones.

Just to add to that, just to confirm and reconfirm what I said earlier, we as a company, we will not sell bananas at a loss. We will not sell bananas until. Unless they are with a decent return to our effort and investment. That makes a lot of sense. Certainly. Okay. And then just as far as pricing actions, as far as within your guidance, what are you assuming for pricing? Just overall as we look at the business? Well, the pricing, you know, we are in the middle of negotiations with retailers, with buyers. I mean, pricing has not yet materialized for next year. Still not clear. But we are focused, like I said, I repeat myself that our prices will not be a price that will incur losses for us unless a price that make a decent return on our investment Otherwise, we. We are not interested in doing any business in the. In that in that area. We know how to sell. And then as you know, we are not only in North America, we are all over the world. We are in Europe. We are in Asia. We are in The Middle East. And we sell a lot of bananas outside. And that our target is really diversification and making sure our returns on bananas are decent, like I said. So our strategy and focus now is not as business as usual. Like it used to be. We are not in a situation where we have only bananas to survive on. Now we are a consumer goods company We have so many other areas where we can improve and make better margins and better returns, and that is what will be our focus. That makes a lot of sense. Thank you.

And lastly for me, just a quick question on the cash flow. So you are operating cash flow was down during the first 9 months of the year. I know there was a question about inventory beforehand. So just if you could just talk about, you know, how much of the inventory buildup was seasonal or related to the acquired business? And yeah, how do we think about the. Just you know, normalized working capital management and, as far as, you know, what you are looking to do as far as your free cash flow priorities, like, whether it is debt reduction or other uses of the free cash flow?

Sure. Thank you. So yeah, this year, we had, you know, additional working capital needed because of the Foods acquisition we acquired in March. So we needed to build up the inventory to get into a normal cycle. So this quarter, there was about $80 million of working capital for the foods business that are included in our numbers. We actually expected that number to be higher, but it was not. So it is it is good news. So this year, our working capital is definitely higher than normal. We expect about 70 or 80 million higher than normal because of this working capital and replenishing our inventory.

But to add to Monica's, you know, you are talking about cash flow usage, I believe, and deployment. We have the same philosophy, the same kind of we did not change our course of business that we are very careful about our debt levels and that is an area we look at very you know, very carefully. And so I will vision will be equal to what we did in the previous years. You know? I mean, Dividends. CapEx, dividends, and growing the business. Understood. Well, thank you very much, and best of luck.

Thank you. Thank you.

Our next question comes from the line of Baljan Tleuliyeva with Freedom Broker. Your line is open.

Good morning, everyone. Thank you for taking my questions. My first question, could you comment on demand trends in prepared foods And are you seeing consumers trade down to private label and how is it how is that affecting your promotional strategy?

We as Del Monte, as I mentioned earlier, we have about 25% market share of the vegetable on the vegetable. Canned item. We have 90% on the refrigerated fruits. And as we go forward, you know, Del Monte has a very significant value because of the quality and the brand, strength. So private label is not in our portfolio. We do not do private label, as far as canned, is concerned. So we maintain our position and our market share in the as far as the vegetables and the fruit. Now we are getting during 2027 and during 2028, and these beyond, we will be offering completely new innovative products, that fit into. To the new, you know, kind of consumption trends and we will be announcing them when they are coming to the market. So we are very confident about the Del Monte Food growth and future. So I. We have no problem with maintaining our positions in the market.

And this is where also the improvement in our customer service levels by improving our fill rates, all that helps us maintain our share. We do understand there is pressure, from the private label, but this is why we are Del Monte and quality matters.

Thank you. 1 more question. With the unified Del Monte brand, which product categories will Jurassic markets offer the most attractive opportunities for expansion? Gerry. Can you repeat that, please? With the unified Del Monte brands, which product categories or geographic markets offer the Most attractive opportunities for expansion?

Oh, between the fresh and the food category, you mean? Right?

Yep.

Yeah. Yeah. Well, like I mentioned in my script, we will be introducing a new category that has not been in the food, division. You know? We have like we said, we have a very strong position with the grape fruit and oranges refrigerated category. Del Monte Food did not have that in pineapple. We are now soon packing, you know, pineapples pink and gold. Into a new product line, which will be like, the grapefruit and the oranges. This is completely new offering. And that will leverage our strength on the fresh side Towards the food as well. I think that will make a huge, huge kind of efficiencies. And optimization of our yields in the in the packing plants and the fields. We will be using, you know, products that usually do not go to the market because of certain issues, defects, but they will be extremely good to be packed, you know, into more, let's say, shelf space or consumer goods item. So that is where we see immediate benefit, immediate kind of optimization of our both areas, food and fresh. And there will be others coming in the future.

Sounds great. Thank you very much. Have a good day.

Thank you.

Thank you.

If there are any further questions, the line is still open. To ask a question, please press 1 to raise your hand. To withdraw your question, press 1 again. We have reached the end of our question-and-answer session. I will now turn the call back to Mr. Abu-Ghazaleh for closing remarks.

I would like to thank everyone today for joining us and hope to speak with you again on our next call and bring you some more exciting news and the future of Del Monte Corporation. Thank you very much. Have a good day.

This concludes today's call. Thank you for attending. You may now disconnect.