Good day, everyone, and welcome to Fresh Del Monte Produce First Quarter 2020 Conference Call.Today’s call is being broadcasted live over the Internet and is also being recorded for playback purposes. At this time, participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. [Operator Instructions]For opening remarks and introductions, I would like to now turn today’s call over to the Vice President, Investor Relations with Fresh Del Monte Produce, Christine Cannella. Please go ahead, Ms. Cannella.

Thank you, Joanne. Good morning, everyone, and thank you for joining our first quarter 2020 conference call.As Joanne mentioned, I’m Christine Cannella, Vice President, Global Corporate Communications & Investor Relations with Fresh Del Monte Produce. Joining me in today’s discussion are Mohammad Abu-Ghazaleh, Chairman and Chief Executive Officer; and Eduardo Bezerra, Senior Vice President and Chief Financial Officer.I hope that you had a chance to review the press release that was issued earlier this morning via Business Wire. You may also visit the company’s website at freshdelmonte.com for a copy of today’s release as well as 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 includes reconciliations of any non-GAAP financial measures we mention today to their corresponding GAAP measures. I would like to remind you that much of the information we will be speaking to you today, including the answers we give in response to your questions, may include forward-looking statements within the provisions of the Federal Securities Safe Harbor laws.We ask that you review the forward-looking statements information included in the press release we issued this morning and in the company’s most recent filings with the SEC. With that, I am pleased to turn today’s call over to Mohammad.

Thank you, Christine. I want to take a moment to acknowledge each of you for joining Fresh Del Monte Produce first quarter 2020 earnings conference call.It has been a very difficult few months for the world. Our thoughts go out to all the heroes working to keep people safe and healthy during this unprecedented evolving global pandemic. I want to extend my best wishes to you and your families that you stay safe and healthy. I also want to extend my gratitude to our frontline team members for their commitment to providing healthy convenient fresh and prepared food products during this crisis.I will go directly to what is likely top of mind for all of us. The impact of the COVID-19 pandemic and the actions we have taken to support our team members and their families, customers, suppliers and our local communities.At the outbreak of the pandemic, we immediately activated our global and regional executive crisis management teams to respond accordingly. At our production facilities, where food safety has always been top of line, we introduced additional operating procedures and safety protocols to include social distancing, thermal screening and increased cleaning cycles to protect our production teams.We activated our supply chain contingency plans to mitigate any disruptions in our ability to service our customers. Most recently, we voluntarily closed a distribution and fresh-cut facility in Boston, Massachusetts for 10 days, due to team members being diagnosed with the COVID-19.We shifted inventory and production from our Boston facilities, and continued to meet demand and delivered uninterrupted service to our customers in the Northeastern U.S. As of today, our Boston facility is back in operation.Other preventive actions included having as many global employees as possible working remotely. Our worldwide team members have rallied around maintaining business continuity during this critical time. And…

Thank you, Mohammad, and good morning. I want to begin with a few words regarding the confidence we have in our cash and our current debt positions as we renewed our credit facility. As you are aware, we had considerable availability in our $1.1 billion credit line. Our leverage ratio for the first quarter of 2020 was below 3.2 times EBITDA.In addition to availability on our credit line, the decision to halt our share repurchase program, reduce the interim cash dividend and postpone non-critical capital investments, we strengthen our cash flow position for the second quarter.In terms of liquidity, we were assured from our lenders we have no issues with drawing down if needed. We generated cash this quarter and kept our level almost flat to the end of fiscal year 2019. So this speaks to the strength of our business. We continue to focus on reducing our debt, while we continue to invest in critical high-margin capital projects to drive efficiency in our operations and expand our value-added business.While we see pressure on revenue and earnings in the short-term, we see much opportunity for us to be ready for future growth when this crisis has passed. Given all of our capabilities as Mohammad declared, I am confident Fresh Del Monte will weather these difficult times and emerge stronger from this challenge.With that, I will now get into the results for the first quarter of 2020. Adjusted earnings per diluted share were $0.34 compared with adjusted earnings per diluted share of $0.46 in 2019. Net sales were $1.118 billion compared with $1.154 billion in first quarter 2019, with unfavorable exchange rates negatively impacting net sales by $8 million. We estimate that the COVID-19 pandemic impacted net sales during the first quarter of 2020 by approximately $27 million.Adjusted gross profit was…

Thank you very much and good morning. And thanks for all your efforts in this crisis. I think first question will be, the shortages, I would just finally – could you tell us what your market share in North America and Europe is to the best of your guesses in bananas, because the drastic increases in traffic we saw, I mean, somebody seemed – I think people will still buy bananas. It sounds like you are supply constrained. Could you give us a sense how much the market grew as far as your estimation? And that will be my first question.

Well, it’s very difficult to say how much the market grew, Jonathan, in the first quarter, because once we started – we just started January, I mean, in February we started facing all these challenges in the market. And by almost end of February, there was like a rush to retail and supermarket.And we saw a spike in the banana sales and consumption. But that was for almost like 10 days, 2 weeks. And then all of a sudden, there was a drop in buying and in consumption. But on a normal basis, usually, our share – market share is about 20% of the North American market. So – and the bananas, we bring about 1.2 million, 1.3 million boxes a week into the North American market.

Okay, thank you. I’ll follow up on that. Ordinarily, you would expect – returning to avocados and pineapples, where you saw some pretty drastic increases in price and, well, what seems to be some supply shortages. And I’m guessing a global phenomenon, because in pineapples volumes are down significantly.Has that pricing lasted into the second quarter and would you expect that to help offset volume declines, continue to help to offset volume declines or have those production shortages eased and more say flat pricing has taken hold?

Yeah, well, actually what happened with the pineapples in particular during the last, I would say, 6 weeks has been catastrophic, because what we saw is that we were expecting to have the Easter period where we are – pineapples sales usually climb up drastically during that period. But, unfortunately, with what is going on right now in the market, supermarkets, retailers didn’t want even to promote pineapples, didn’t want even to put pineapples on their shelves, because they said that this is not an essential item.And what we saw is that there was an avalanche of volumes coming into the market with not much buyers. And that’s the fact and it has really impacted us during the first quarter and the first couple of weeks of this month, April. But as we speak today, we see now – the trend is moving back to normal, I mean, consumption and buying of pineapples and pricing improving.But during this, I would say between the – prior to Easter and throughout the end of this month, I mean, the end of March, early April, the pineapple market was in turmoil. It was not a shortage reality. There was no shortage of pineapples. There was no market for pineapples and that’s unfortunate.And we notice that mainly for pineapples, and not only in North America, but we saw the same trend in the Middle East, in Asia as well, and Europe, that customers were – like priority for them, maybe it was bananas and other types of certain vegetables. And we have to consider also that with unemployment, the way it is going, be it in Europe, be it in North America, is really have impacted the consumers’ purchasing power. And in my opinion, this will be a factor going forward.But I believe that we can overcome this with our vertically integrated business and the way we are managing our business, Jonathan.

Great. And last question, more of a financial one, can you make any estimate as to – on an adjusted basis, forgetting about the $8 million write-down of inventory, what impact in terms of gross or operating profit the $27 million shortfall you enumerated to COVID-19 had on your company?

Thank you for the question, Jonathan. It’s really hard to precise – we were looking into that. So when you see the overall effect in gross profit year-over-year, as we talked about, we had an effect related to FX that was about $6 million. And – but the difference there, there is a portion that’s really related to pricing as we talked in explaining our results. Starting in Asia, we saw significant drop in prices because of the port closures in China. So not because we have a strong presence in China, but other companies that had volumes going to China, they were diverted to Korea – South Korea, Japan and Hong Kong, where we have the largest market share in the world.And so, that really put pressure on prices there. And then, secondly what we saw is starting in Italy and impacting the other regions as well is beginning in March, we started to see more fierce competition in both bananas, as well as in volume. So I would say the majority, but it’s hard to precise of that impact of the $27 million net sales translated to the gross profit line.

Wow, thank you very much. That’s all I have. Thanks again for your time.

Thank you, Jonathan.

Thank you, Jonathan.

Your next question comes from the line of Mitch Pinheiro from Sturdivant. Your line is now open.

Yeah, hey. Good morning, everybody. Hope everybody is well.

Hi, Mitch.

Hi, Mitch.

Hey, I missed the beginning of the call. I was just curious, Mohammad, whether you spoke about to the extent you can, sort of the outlook for the second quarter as it relates to all the disruption. I mean, are you back on track to any extent? Is there anything – I mean, how should we approach putting our estimates together for the second quarter?

I’m always honest, and I am very honest in saying that the first April was challenging. As we go now, and in April – first part of April was challenging regarding pineapple and the fresh vegetables as well, because of the foodservice. Foodservice is a major, major consumer or major buyer of vegetables at fresh-cut vegetable. With the foodservice out of the picture, mostly, and that has impacted our fresh vegetables in Salinas and Mann Packing as well as in a slight way, the fresh-cut fruit as well.But as we speak today, I see a much better markets going forward. We see a lot of more normalcy in the market. We see the pineapple coming back to normal behavior, and we see a very promising signs even from the foodservice that the volumes and the demand is picking up. We can see this even during this week that things are changing. And I believe that we are in a very strong position, Mitch, and let me be very clear on that. As far as, we – Fresh Del Monte, we believe that we will come out of this crisis stronger than before, because for us, during this crisis we have seen all the weak spots and all the, like we say, the holes that we – that clearly identify.And with what we are doing right now in Salinas in particular, the consolidation of our operations that will bring us, hopefully by end of June that will be totally done, but that will bring us about more or less [$13 million] [ph] in savings, just by doing that in our operation in Salinas. And there is more to do that. We are moving consolidating our operations in Arizona, for instance. We are leaving 1 plant, which has been leased to go to our own plant in – outside Phoenix, where we are going as well to make substantial savings there and better operations.We have so many things going on in the next few months that will substantially strengthen our business. We – I don’t want to mention everyone on a conference call, but maybe through this team can give you more information later on and Eduardo. But we have so many very positive things going on for the second half of the year, and I believe that there will be a lot of – hopefully very nice surprises.

And Mr. Abu-Ghazaleh, if I may add, Mitch, a couple of additional comments. So we started in the month of – sorry, April, because Asia was the first market that was face the impact of the coronavirus, and was the first to come out. We’re seeing in the month of April much stronger gross profit margins than what we saw a year ago. So either on bananas or some of our other products that we see, we’re gaining higher margins than what we saw last year.And another thing that is important, because at this time consumers also looked into destocking traditional prepared business. We saw a significant increase in our – in demand for our prepared traditional business that last year had a very minimum contribution to our bottom line and it was almost breakeven. While, this year we expect a very strong contribution between our branded, our private label business and our concentrates, because all of those saw a significant increase in prices things to be end of last year. And as we’re expecting inventories to be deployed with the new production coming in from Kenya at much more favorable yields as compared to last year that will drive reduced costs that we’re going to see between Q2 and throughout the end of the year.

Okay. Thank you. When – what does – at this juncture, what does the banana market look like for you globally in terms of the supply and demand picture?

Today, as we speak, I think, supply and demand are more or less in line, Mitch, I don’t see shortage of bananas, and I see the consumption and the demand are very much in line, really we don’t see big disruptions like we saw in pineapples or in vegetables or in the value-added products. But banana has been steady and consistent. What I would like to comment as well, which I mentioned in my script is that we just started actually e-commerce platform.And I would encourage you to go and look at it. It’s www. myfreshdelmonte.com and I want you to see our new site. And it’s – we have just started about 2 weeks ago or less, and it’s been a fantastic start and the reception and the feedback has been extremely positive. And we see repeat orders, and when you see repeat, the customers are extremely, highly positive, because of the – also the quality and brand itself has been extremely favorable to this. And hopefully this will also be rolled out in the next few months in North America as well.

Okay. A couple of other questions. By the way, just going back one question regarding like the fresh veggie business, fresh fruit, where you talked about challenging, obviously, the challenging environment for foodservice. What percentage, how big is foodservice either within all of Fresh Del Monte or just in the veggie, fresh-cut veggie area, fresh-cut fruit. Can you give us some sort of…

Yeah. I’ll tell you as far as our business with this fresh-cut fruits and related other items that we produce ourselves, it’s about 30% foodservice, about 70% other items. It’s the reverse with the Mann vegetable business. It’s usually about 70% foodservice and 30% retail. So the foodservice was mostly hit in the Mann vegetable business rather than in our own category, which is the fruits. But still, all in all, fruits and vegetables were impacted negatively during this last 6, 7 weeks, since the foodservice almost came to a standstill. And – I mean, considering ourselves compared to the foodservice, I think, we are very lucky. We should be – I mean, our business definitely have been impacted, but compared to people in the foodservice, I feel, very sad and very sorry for them the way it’s going.

Just 2 more questions, quick questions…

So just one correction, Mr. Abu-Ghazaleh, because I think in your numbers are included some other channels. Specifically on what we call foodservice that represents about between 15% and 20% of our overall sales, used 2019 as the basis via for Mann Packing specifically that’s about 45% to 50%, so a little bit less of that. So that’s why January and February, we saw a recovery from the previous recall, but then March is when we saw a huge impact, because the foodservice suddenly shutdown, and so almost half of our demand went away from one day to the other. So that caused a significant portion of the other charges that we mentioned, Mitch, on the – on our adjustments regarding inventory, [well it’s all] [ph] by acres. So acres that we decided not to harvest. And that represented almost half of the $8 million impact that we saw in Q1.

Okay. Thank you. I had just 2 more quick questions. One, on the fresh-cut veggie business and the recall, is there any way to – if you – how much of the recall sort of was in the decline there? Is there any way to kind of gauge what business you didn’t recover?

So I would say, Mitch, a couple of things. So there are a couple of customers that they were concerned about the issues that we faced. But we were – we assure them that with the new Gonzales plant up and running by the month of July. We are very confident to come back to have business with us. But also, we do believe that a lot of the cost and inefficiency that resides on Mann Packing is going to go away, because we’re combining, just for you to have an idea, almost 4 different plants in 1 single facility. So it’s going to drive, as the Chairman mentioned, about [$13 million] [ph] in savings annually.And we expect as we reach big capacity there that could be even higher than that, because we’re going to reduce logistic cost, rental cost that we have there as well as we’re going to be able to because of automation. That’s going to run much faster our operation there, and be able to supply with a best customer service versus what we saw before. So all those things, I would say, will be in place starting in July. And I can tell, the only struggle why we haven’t been able to ramp up this faster is because of limitations on water usage imposed by the city of Gonzales that originally, we had a commitment on their side for a certain volume. But that changed a little bit. And finally, we signed the documents in the recent weeks. And with that, we’re 100% secure to get into the operations there.

Thank you for that. And last question on the avocado market. I was surprised – I mean, looking at the volumes in the United States, I didn’t see volumes decline 21%. So your volume decline seemed a little larger. And also your pricing up 33% in the quarter was a little bit stronger than I would have anticipated. I kind of saw near double-digit. Can you talk about your avocado business a little bit?

The avocado business, Mitch, has been with us for so many years now and we had been all the time buying through third parties. I mean, we never had a plant there. And everything that we used to buy, we used to buy from the market from packers there, that used to pack for us or even in the open market sometimes when we are short. However, since about 2, 3 months back, we started our state-of-the-art – one of the – it is literally the best plant in Mexico for avocado packing. There is nothing compared to it.And I can tell you, it’s one of our best plants in the world really. When I saw it, I was – I couldn’t believe it. Anyway, but now, we are packing almost everything in our plant. So I think this will reflect also on our cost, our quality and our service to our customers. So we are very confident, Mitch. Going forward, I think that our market share and our presence in the market will be very significant through the new kind of streamlining our business, avocado business, in North America, Europe and Asia.And it’s not only this plant that we built there. It’s not only for North America. But it serves Europe; it serves Asia, MENA, and North America, of course, the biggest market. But we are very confident and very enthusiastic about the future for the avocados going forward really.

So what happened in the quarter though? I mean, I just – I mean, volume is down 21%. It was in the – I didn’t see that in terms of like supply changes into the U.S. market. I just thought you would see flattish kind of volume. And then, this with your plant, unit costs were 44% higher. I guess, you’d see that come down with your packing plant efficiencies. But it just seems like the quarter was – it’s sort of opposite of what I was looking for in the avocado line.

Yeah, but don’t forget that we have seen – with the pandemic that we are going through, we saw the first week, 10 days once the government said that there will be a closure and lockdown on people. And we saw the huge rush to the retailers, to the clubs, and people in lines. And we saw a very big spike into avocados in the first like 10 days.And then, all of a sudden, because of that, there was lot of supplies coming into the market. The pipeline was full. The cold storage was full, anticipating that will continue to go on. Unfortunately, like 10 days later, 2 weeks later, all of a sudden, consumption and buying is just like in pineapples, not as bad as pineapples, but with avocados, we saw a very drastic drop into sales. And the stocks that were in the pipeline or in the cold storage were impacted and suffered.We cannot – excuse me, we cannot put so much volume for so long in storage.

And just to complement there, Mitch, as well, so we have the ramp-up plan of our plant during this year. And so, and of course, in the beginning we had higher cost, because of the startup of the plant that we are seeing right now. But a good example is, in the month of April in the last couple of weeks, we are working the plant at a very high utilization capacity, preparing for the Cinco de Mayo. So it’s interesting that while we’re talking about pineapples that we saw demand during the month of March and suddenly went down, because I think there was a frustration on expectations of Easter.We’re seeing now the opposite. So we’re seeing an uptake on the avocado volume preparing for Cinco de Mayo. And so, we are running our plant 24/7 with very strong efficiencies there. And we believe that some of the challenges we faced in Q1 in terms of the sourcing and achieving our regional volumes, I think they were adjusted and corrected for the second quarter.

I would like to add…

Oh, thank you. Thank you for…

I’d like to add to this, Mitch, that we are not only packing in Mexico. But we do have our packing plant as well in Los Angeles. I mean, we are packing as well the California avocados. So we have two sources right now. It is California avocados as well as Mexico. And that’s for our markets.

Okay. Thank you. Thanks for taking the questions.

Pleasure.

There are no further questions at this time. I will turn the call back over to Mr. Abu-Ghazaleh.

Thank you. Thank you very much and I appreciate having you joining this virtual call, which is first time that I have done that. But it went very nicely and I can assure you that we are very confident about our immediate future as well as the long-term future. And I hope to talk to you in person and from our offices on our next conference call.Best of luck and stay safe. Thank you. Good day. Bye.

Ladies and gentlemen, this concludes today’s conference call. Thank you for participating. You may now disconnect.