Good day, everyone, and welcome to Fresh Del Monte Produce's Second Quarter 2022 Earnings Conference Call. Today's conference call is being broadcast live over the Internet and is also being recorded for playback purposes. For opening remarks and introductions, I would like to turn today's call over to the Vice President, Global FP&A and Investor Relations with Fresh Del Monte Produce, Ana Miranda. Please go ahead, Ms. Miranda.

Thank you, Rob. Good morning, everyone, and thank you for joining our second quarter 2022 conference call. As Rob mentioned, I am Ana Miranda, Vice President, Global FP&A and Investor Relations with Fresh Del Monte Produce. Joining me in today's discussion are Mohammad Abu-Ghazaleh, Chairman and Chief Executive Officer; and Monica Vicente, Senior Vice President and Chief Financial Officer. I hope you've had a chance to review the press release that was issued earlier this morning 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 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 and our call today include non-GAAP measures. Reconciliations of these non-GAAP financial measures are set forth in the press release and earnings presentation, which is available on our website. I would like to remind you that much of the information we'll 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 laws safe harbor. In today's press release and in our SEC filings, we detail material risks that may cause our future results to differ from these forward-looking statements. Our statements are as of today, August 3, and we have no obligation to update any forward-looking statements we may make. During the call, we will provide a business update along with an overview of our second quarter 2022 financial results followed by a question-and-answer session. With that, I'm pleased to turn today's call over to Mohammad.

Thank you, Ana, and good morning, everyone. As you have seen today, we delivered an excellent robust second quarter. Our net sales increased by $70 million compared with the prior year period. And we saw a continuation of our robust top line trend comprised of 5 consecutive quarters of growth versus the prior year period, demonstrating the resilience of our iconic brands. During the quarter, we continued to operate in one of the most volatile and uncertain operating environments in recent history. As a result, the cost of products sold increased by $100 million, driven by broad-based inflationary supply chain and logistical headwinds. Despite these headwinds, we generated positive earnings, all while maintaining our debt balance in line with last year, generating strong cash flow from operations and continuing our dividend payout. During the quarter, our adjusted EBITDA margin was 4.6%. We lowered our debt by $91 million, generated $95 million in cash flow from operations and invested $12 million in capital expenditures. Our results are representative of our commitment to grow our brand by revisiting everything we do. Highlighting our dedication to outperform in an environment where many are not. On the product innovation front, I'm pleased about our pipeline and the team's focus on the development of our products aligned with consumer trends. We recently launched per-trade organic banana and Goodvocado featuring avocados that naturally range from small to large. The Goodvocado pack allow consumers to customize their use of Avocados. We recently announced a collaboration with stored a leading cloud supply chain providers. Their services include warehousing, freight and fulfillment. Store will leverage 22 of our best-in-class cold storage facilities across the U.S. We also expanded our logistics services in the U.S. with Happy Egg, whereby we provide egg producers access to our temperature-controlled warehouses and fleet…

Thank you, Mohammad. Let's turn to our second quarter of 2022 financial results. As noted by Mohammad, net sales for the second quarter of 2022 increased by $70 million or 6% compared with the prior year. Net sales benefited from inflation justified price increases. Partially offsetting the increase was the negative impact of fluctuations in exchange rates mainly versus the Japanese yen and to a lesser extent, the euro. The negative impact of fluctuations in exchange rates was partially mitigated by our foreign currency hedges. Adjusted gross profit for the second quarter of 2022 was $81 million compared with $112 million in the prior year period. Despite higher net sales, gross profit continued to be negatively impacted by broad-based inflationary pressures and logistics constraints. Higher costs across the board resulted in the increase in cost of sales of $100 million, including cost of packaging materials, fertilizer, ocean and inland freight, fuel and labor. Adjusted operating income was $33 million compared with $61 million in the prior year period. The decrease in operating income was primarily due to lower gross profit, partially offset by lower administrative and advertising expenses. Adjusted FDP net income was $21 million compared with $47 million in the prior year. Our diluted earnings per share was $0.44 compared with diluted earnings per share of $0.99 in the prior year. Adjusted diluted earnings per share was relatively in line with our GAAP performance as both periods had minimal nonoperational and nonrecurring items. Adjusted EBITDA for the second quarter was $56 million compared with $84 million in the prior year and corresponding adjusted EBITDA margin was 4.6% compared with 7.3% in the prior year period. Let's now turn to the segment results, beginning with our Fresh and Value-Added product segments. Net sales for the second quarter of 2022 increased…

At this time, I would like to remind everyone. Your first question comes from the line of Jonathan Feeney from Consumer Edge.

I'm most interested in the progress in the banana business. We all understand there's unprecedented costs, but everyone has unprecedented costs. What is it that's preventing -- obviously have significant year-over-year diminution in margin, what is it that's preventing pricing from going higher? You mentioned Asian market specifically. I'm curious about U.S. contract pricing, European markets, just markets broadly, why wouldn't pricing be more robust if everybody is seeing the same cost?

The main reason for the price is not going up is because of the retailers resistance to increase the pricing on the shelf. And hopefully, they will understand that this cannot go on forever because we will not be able to supply bananas in any material form going forward unless the prices start going up and really compensating for all the efforts and investments that we put on the farm. It's . The prices on the shelf has to go up.

Absolutely. But there are and have to be some cooperative suppliers at the moment. I understand that's been the dynamic and we've been together a long time now. I've been through a lot of these 20 years and a little more. But it's -- what's unique this time is how ubiquitous this inflation is, I mean, you can't go anywhere without people talk about inflation. So like who are the main -- are you losing or gaining -- well you -- let me ask you this, are you losing share in some of these markets because there's business you won't do, and there's others who are more commodity players who are willing to sell at lower prices? Or how is that working?

Not necessarily -- not necessarily, Jonathan. I mean, it's like we lose on one side, we gain on the other side. I mean, in my opinion, it's -- unfortunately, it's like the -- I keep repeating myself, the price of bananas hasn't moved for the last probably 15 years on the shelf. And everything has moved, like, almost 100%, I mean, if you go to a supermarket today, you cannot buy an apple for $1 probably or $2 even in some cases, a piece of lemon, 1 lemon for $1, I mean everything is astronomical. And if you go to a pound of bananas and its $0.50, $0.60, it doesn't make sense. I mean, we are like in between the hammer and the -- I mean our producers cannot continue, shipping is increased, fuel has gone up the roof -- through the roof. Everything has really increased. And we are at a point now where action needs to be taken as a matter of fact.

I guess that's helpful context. Can you comment specifically about the effect of -- you mentioned Asian exchange rates, but I was surprised not to see a mention of the roughly 15% decline in the euro in the press release. Like historically, this business has been extraordinarily euro-driven. Was that a big headwind this quarter?

No. We have to be honest that we have been hedged against the euro at the beginning of the year, not 100% significantly, number one. Number two, the European prices held very well during the last few months. So -- and this has really have helped a lot in terms of the banana returns. So -- and this is part of the -- part of the logistical issues that the market is facing, not enough containers, the freight is very high. Even in some cases, Banana started showing some shortages in some locations. And this is due also to the increase in crystalizes and all the inputs that you need to have in the production on bananas, and so many growers now cannot afford and to use fertilizers in the same way that they did, and that consequently reduced production rates. And if this continues, I think this will be -- in fact, we'll see the impact even greater going in the future.

Interesting. So yes, it sounds like there's a little bit more discipline in the European market, maybe in some other places. I guess my last question is, how would you compare that pricing dynamic that you're seeing in Bananas to the better performance you're seeing in some of your other products? Or are other product areas more -- is it easier to raise pricing? Are you satisfied that you come in the second half of the year, costs stay elevated, you'll be able to recover pricing and drive margin the way you wanted to coming into the year?

I think in the value-added segment and Services segment, we have more, let’s say, flexibility and working with the customers to put a decent pricing, let’s say. But in the case of bananas, we are always influenced by the price ambitions.

Again, your next question comes from the line of Mitch Pinheiro from Sturdivant.

Sort of following up a little bit on John's questions. If you look longer term, you go back 10 years to take out some of the volatility. Your banana business has been relatively flattish for all the reasons that you sort of mentioned, I guess, Mohammad, with just retailers reluctant to take pricing. And -- but then I'm looking at the Fresh and Value-Added segment, and you've added over the last 10 years, you've added $1 billion in sales, but we're the same -- with the same gross profit level. And by the way, you've done an excellent job on SG&A. Your SG&A over the last 10 years has been relatively flat in absolute dollars. So you're doing a great job in controlling those costs. But it seems like the Fresh and Value-Added side just can't get moving. There's -- and I understand the inflation today and things, but there's always going to be something globally that will be a headwind over the course of 10 years. So can you talk -- I mean, why is it the Fresh and Value-Added business a lot more profitable than it is? I know you obviously expect it will be, but what's happened over 10 years that it just can't show meaningful profit improvement?

Unfortunately, I need to be very transparent. On the fresh cut and the value added, we have increased prices over time. Of course, cost of production and cost of product has been also going up. Sometimes we even raised the price this quarter. And at the end of the quarter, the cost EBIT catch up with us for whatever we have increased in pricing, and we get that to like ground zero again. But another area where we really have suffered during the last couple of years is our acquisition of Mann Packing where we have suffered into the margins and the -- and especially during the COVID period in 2021 where the market has almost come to a stop. And we suffered quite substantial losses from our products that are in the fields we could not move and less demand and less power. So this probably is the -- what you see as a factor in seeing lower or no movement in the average pricing. But in reality, yes, we are doing very well, except for this particular case, which is the Mann Packing. Hopefully, by the end of the year, this will be taken care of, and we will see going forward with growth in that area.

What is it with Mann Packing specifically that you want to see improved? I mean, you're getting pricing, but is it a channel issue? Is it customer issue?

No, no. It's -- Unfortunately, it's a contract -- when you sign a contract, and the contract is not reflecting the real cost or a very good -- I mean, a reasonably good margin. And then you end up within a contract period that you have to keep supplying with negative returns. We are addressing all these issues, contracts that are not paying enough has been not renewed, cutoff and so at several fronts on the front of production as well, contracting with -- contract growing. That's another area where we need to also fix well. So we don't have more production than what we need. It's on several fronts. It's mainly with sales and production side, which our team is handling very well as we speak now. And I have confidence going forward that will be taken care of.

Okay. And is that something -- I mean, is that something over the next year that we're going to -- we can actually see improvement there? Or is it going to.

I hope within the '23, we should see improvements there. Yes, definitely.

Okay. That was very helpful color there. I guess also on just the banana segment, can you just give us just how the supply-demand outlook looks here in the very near term.

It’s been very erratic in the last few months, especially with Ecuador. Ecuador went, I mean, really is in a very big turmoil in terms of consistency of production. Yes, they have production, but the quality and the condition of the fruit that is in the market right now, on the side of Ecuador is not consistent because, like I said a few minutes earlier, the application of fertilizers and other chemicals to control the diseases and pests is not being applied as normal as it should be, and that has affected production in terms of yield and quality. And that’s – we have seen as well as the disruption into the supply chain, the disruption and shipping, enough equipment and containers to move the fruit from one – from source to markets. Small, medium-sized growers are really having a lot of difficulties securing financing to continue operations. All these factors together, in my opinion, will drive the banana sector to a point where the production will come down, in my opinion, significantly in the future. And I cannot decide 1 year or 2 years. But I believe that the banana industry, in general, will not be able to be – to sustain the way it has been going for the last 10 years. I mean they were living on a lifeline. Money was easy. Interest was almost 0. Chemicals, fertilizers, inputs, transportation, you name it, everything was quite competitive, cheap. The picture has stand around completely now as you – everybody knows. So you add up everything, and it will not work. I mean I wouldn’t be surprised to wake up one morning and see a banana box costing $20 and I’m not – this is not something that I speculate. I believe in this, and I have believed that for many years. And I think, there would come a time when everybody wakes up and there will be not enough bananas to feed the markets.

And there are no further questions at this time. I will turn the call back over to management for some final closing remarks.

I would like to thank everybody for attending this call today, and I hope to talk to you on our next quarter and wish you a good day. Thank you.

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