Good day, everyone and welcome to Fresh Del Monte Produce’s Second Quarter 2020 Earnings Conference Call. Today’s conference call is being broadcast live over the Internet and is also being recorded for playback purposes. [Operator Instructions] For opening remarks and introductions, I would like to 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, Lindsay. Good morning, everyone and thank you for joining our second quarter 2020 conference call. As Lindsay mentioned, I am Christine Cannella, Vice President, 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 distribution. This conference call is being webcast live on our website and will be available for replay after this call. Please note that our press release 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 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 and good morning everyone. The message we want to deliver today is one of resiliency. Fresh Del Monte Produce is driven by a team that understands there will always be challenges somewhere in the world and we operate under a model and philosophy in line with that understanding. Even with the new challenge brought on by the COVID-19 pandemic, our vertical integration and portfolio diversification strength helped to maintain our business continuity in the second quarter of 2020. As a global business that operates in over 100 countries around the globe, each of our locations were impacted by COVID-19 in different ways to different degrees and at different times based on mandatory government shutdowns, including restaurants, schools, foodservice and business closures. While we did benefit during the quarter from gradual re-openings in certain regions globally, in North America we continued to experience reduced demand from our customers in the restaurant and foodservice industries as well as ongoing shifts in demand at retail that suffered our quarterly financial performance. Despite these challenges, our global firms, plants and distribution centers remained operational with minimal disruptions in our shipping and logistic operations. We also strengthened our liquidity position and we were able to reduce our debt despite the market disruption. During the quarter as the pandemic took hold, we remained focused on our business transformation plan for 2020 and beyond to respond to the economic environment and position us for better performance as we work through the global impact of the pandemic. We identified several opportunities to drive efficiencies and improve utilization of our assets that will de-leverage our business and provide liquidity to fund our investments with the potential sale of available properties we do not intend to use in the future. We capitalized on our new avocado processing…

Thank you, Mohammad and good morning everybody. I am extremely proud of our team for their focus and perseverance through an extraordinary set of circumstances brought about the COVID-19 pandemic and the unprecedented challenges presented by this situation. I want to highlight some key financial accomplishments. Despite continued disruption in foodservice sale and shifting demand at retail during the second quarter of 2020, we achieved a net income per diluted share of $0.38 per share versus net income per diluted share of $0.78 in the second quarter of 2019. Excluding among other things, the effect of other product-related charges, which resulted in a $10.6 million gross profit impact related to inventory write-offs, which included donations of products to local communities, we delivered adjusted net income per diluted share of $0.54 compared with adjusted net income per diluted share of $0.72 in the second quarter of 2019. However, I would like to point out that if you apply the adjusted gross profit margin of 8.1% to the $132 million of net sales impacted by COVID-19, we estimate that we would have delivered an additional $10 million in adjusted gross profit. Additionally, keeping strong liquidity has been a key focus for our team. Despite the headwinds of the COVID-19 pandemic, we generated $111 million in cash flow from operating activities during the second quarter, we reduced our long-term debt by $52 million since the end of 2019 and we reduced our long-term debt by $64 million compared with the end of the first quarter of 2020. During the quarter, we also focused on investing in critical, higher-margin capital projects to optimize our operations and we undertook a review of underperforming assets. As Mohammad mentioned, the strength of our company and the diversity of our portfolio are most apparent in times like these,…

[Operator Instructions] And we do have a question from the line [indiscernible] with – sorry, Mitch Pinheiro with Sturdivant & Co. Your line is now open.

Hi. There, good morning.

Good morning, Mitch.

So, a couple of things. First, the – so other than the – looking at the virus like affected operations here. Other than the write-off of $10 million of unsalable fruit and obviously the loss of sales, where there any other costs related that sort of weren’t a part of just your normal gross margin, anything unusual in there that we can also call out in the quarter?

I don’t think so, Mitch. I believe that – actually, the figure, it’s almost $11 million of goods that we had to unfortunately dump or donate to the food banks, but the whole issue of that is because all of a sudden there was a lockdown and we got caught with so much inventory in our stores and on the water coming into the markets that we could not, of course rationalize. And at the same time, customers, especially in the foodservice business, completely shut down or almost 60% down, 70% in some cases, as well as retailers were not able even to receive the volumes into their distribution centers because of disruptions with the COVID and having less people working inside. As well as they didn’t want to kind of – they were overwhelmed in their stores that they couldn’t put on the shelves enough fruits and vegetables. And that’s why actually the main reason why we had this kind of loss unfortunately. Other than that, it was mainly because of market conditions. That was the only reason. And as things started to – of course, once we got that shock, we realized that we have to rationalize as well our volumes going into the market. So we started kind of matching demand with supply and now things are under control of course once the market started to normalize again. Still, the foodservice is still down by about 50% as we speak. Retail also is down, but not as much as we saw in the second quarter, especially in March, April and early May.

The avocado business, I was surprised it was down as much as it was. Is that because you sell a lot of your avocados into the foodservice sector?

Not really, no. Our – most of our avocados goes really into the retail and certain food – I mean, certain FDA – QSRs. But the main reason – one of the main reasons why we saw – there is a difference in price between last year. Last year during the second quarter we had prices of about $60 and over $60 per box, while we saw prices around $30 and $33, $35 during the second quarter because of the demand and the supply. And of course, it does not affect us because we buy according to the market demand. So the prices in Mexico went down also drastically. So, it’s all a matter of pricing, not because we are selling to foodservice or to retail. But our major sales are going into retail and few as well in the food sales.

And Mitch, if I may complement. So with the opening of our facility in Mexico, there was a significant business model change. As you may remember, in the past we would source our products through co-packers. And so as Mr. Ghazaleh mentioned, last year with the huge spike in prices either the growers or the co-packers they were the ones that were mostly benefited from that. With the change in our business model, we are sourcing directly from growers in Mexico. And so if you compare the margins, our margin expanded almost more than 400 basis points in this quarter versus last year because we were able to capture better costs as managing our relationships with the grower and also benefit from the currency variance that took place in this quarter. The other thing is important as we highlighted, our original expectation was that we would achieve full capacity more towards the end of the year and given the strength of our business and the focus that we gave we were able to ramp up it faster 4 months in advance, and so that also contributed to have a better margin than what we originally expected.

Okay. Thank you for that. And then can you talk – so as we look at the third quarter here, so we are going to see a little more of the same, maybe a tad better sort of in the fresh-cut area because foodservice is opening up a little bit more than it was maybe in June. Is that fair it will be sort of more of the same in Q3?

No. Mitch, to be honest with you, the foodservice is still being impacted really very hard. I mean we are seeing foodservice down by 50%, 60% as we speak. And what we see is QSR getting a little bit better than what we saw in the second quarter. So I don’t believe that the foodservice is going – because as we speak now, the pandemic is really spreading back again and I don’t believe that foodservice is going to open up until the situation clears up, more clarity in the future. I believe that, yes, we see a little bit improvement in the retail section and the – let’s say, the club stores, but still it’s down, year-over-year it’s still down. Though it has improved from the second quarter, but we are still down on what we saw in 2019.

Okay.

And Mitch, if I may complement, what Mr. Chairman mentioned is – so if you look into the fresh and value-added products, I wanted to highlight some positives, right? So, pineapples, was hardly impacted in the second quarter and we are seeing an important recovery in prices. It’s not clear if that’s going to be sustaining towards the end of the year, but that’s a very positive sign. So, I think we passed the most difficult part of the year. When you look into fresh-cut fruits, although we cannot control the demand, we are able to control our cost. So, if you look, we were able to improve – even with 30 – 26% lower volume, we were able to improve our margin by 1%. And that’s mainly because of the focus that we are taking on managing our cost in all our facilities around the world. And because of the recovery in certain markets took place later in the quarter, we do believe there is still opportunity to see the same trend continuing. When we look into fresh-cut vegetables, vegetables and meals and snacks, the consolidation of Mann Packing is going to – that is going to take place in the third quarter will start bringing profits right away because we are going to be able to get out of leases that we have today. And there are lots of costs associated with logistics of moving products around. So consolidating that in one facility state-of-the-art with much higher automation, that also will drive lower labor costs. So that’s going to be a margin expansion that we expect it. And also the important thing the prepared traditional products that over the last couple of years suffered a lot because of oversupply in the marketplace that drove significant competition in prices and lower margin, that is – has improved significantly in Europe, and so we were able to reduce the losses and even turn that into a significant profit contribution for this year. And also, there will be a factor on improving our working capital as we are able to reduce inventories and optimize our operations that we have in Kenya. So it’s hard to predict what’s going to happen to the demand, but it’s important to highlight that everything that is under our control in terms of driving efficiencies in our operations, optimizing our costs, reducing – improving underutilized asset efficiencies, we are going to see a significant contribution of that more towards the last quarter of this year and in 2021. And aside from that, with the new vessels coming in that they are going to be run at lower speed, so lower consumption and the fuel that’s used is cheaper, that is going to also help drive efficiencies in the last quarter of the year.

Okay. Thank you for that. Appreciate the color. And I will hop back into queue. Thank you.

[Operator Instructions] Our next question comes from the line of [indiscernible] Holdings. Your line is now open.

Hi, good morning. Thanks for taking the call. And first of all, congratulations on how well you have controlled what you have been able to control in the pandemic. I might have missed this on the call in your comments, but earlier in the quarter, you announced that you had reauthorized a stock repurchase program. Did you repurchase any shares in the quarter?

Yes. We repurchased almost 550,000 shares for approximately $13 million.

Okay. And then secondly – and you have how much left on the authorization?

I am sorry, could you repeat the question?

You have how much left on the authorization?

We still have a significant volume of shares that were authorized by the board in 2018, in excess of $200 million that we would be able to repurchase if that makes sense for the company.

Okay. And secondly, Mohammad sold some stock during the quarter, which seems like a – when the stock hit 52 weeks low when he sold it. Would you care to comment on that?

No. Actually, I needed some cash. I haven’t sold stocks for the last probably 5 years. So, this is a personal matter. It has nothing to do with the company or the results.

Okay. And then I guess finally is a more longer term question, probably post-pandemic, but there seems to be a real disconnect between the tangible book value of the company, the real estate assets, all your assets vis-à-vis where the stock is trading. I mean longer term, have you and the Board discussed ways to close that gap?

Yes, of course. I mean, we are aspiring to go up to unlimited levels on our stock price, hopefully 100 one day, maybe sooner than later.

Okay. Alright, thanks very much. Appreciate your time. Thank you.

My pleasure.

Our next question comes from the line of Katia Tavarez with Wells Fargo. Your line is now open.

Hi, thank you for the questions. Just wanted to follow-up on the net sales and looking at fresh value-added products and the decline. So, if we put aside price mix and we only look at just the volume losses, which I assume came mostly from North America, how much of that volume decline do you – can you tell us what’s attributable to like consumer demand and how much of that was volume loss because of other factors like you mentioned, product rationalization or recalls? Thank you.

You mean fresh-cut fruits or fresh-cut vegetables, because we do have two categories there or you are mentioning both of them?

Yes, the entirety of like fresh and value-added products.

Well, I would like to divide this into two. As far as the fresh-cut vegetables is concerned, which is mainly by Mann Packing, this has been affected negatively at the end of 2019 when we had the recall if you are aware of that and that has impacted our sales during the first and the second quarter. Now as we are moving into the – our new facility in Gonzales, which is state-of-the-art facility, which will contain all our business moving from four different facilities in Salinas into under one roof and that is going to give us a tremendous leverage with our quality and assurance of consistency. And we believe we are going to kind of recoup what we have lost in the last 6 months or 7 months as we go forward towards the end of the year and in ‘21. As far as the fresh-cut fruit itself, mainly it was because of the closures of again especially the foodservice and retail in particular as well as convenience stores. We cater to many areas in the industry, foodservice, retail, convenience stores as well as QSRs and others. So, when we look at the fruit itself, we had sales decline during that quarter of about 30% to 35% minimum of sales. And as far as the vegetable itself, we saw in the foodservice almost 50% and above in reduced sales. As we speak today, we see the fresh fruit coming back. We still have about 15% to 20% – 15% decline in sales year-over-year. And as far as the foodservice, we still see a big decline in that area and it’s just mainly because of the closures of restaurants and foodservice buyers.

Okay, that helps. Thank you.

Thank you.

There are no questions at this time. Mr. Mohammad Abu-Ghazaleh, I turn the call back over to you.

I would like to thank everyone that gave us the time to be on this call. And as we speak, I am very confident about the future and I want to assure you that we are doing everything to mitigate all the risks and disruptions that we are facing today in the market because of the pandemic. But we are on top of it and we will take the measures that will keep us as profitable as always. Thank you very much and hope to speak to you on the next call. Thank you.

This concludes today’s conference call. You may now disconnect.