Good day, everyone and welcome to Fresh Del Monte Produce Third Quarter 2023 Earnings Conference Call. Today's conference call is being broadcast live over the Internet and is also being recorded for playback purposes. Ladies and gentlemen, I want to thank you for standing by. My name is Sheryl, and I will be your conference operator today. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. [Operator Instructions]. Thank you. For opening remarks and introductions, I would like to turn today's call over to the Vice President, Corporate Communications with Fresh Del Monte Produce, Claudia Pou. Please go ahead, Ms. Pou.

Thank you, Sheryl. Good morning, everyone and thank you for joining our third quarter 2023 conference call. As Sheryl mentioned, I'm Claudia Pou, Vice President, Corporate Communications 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 that 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, November 1, 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 third quarter and our nine-month 2023 financial results, followed by a question-and-answer session. With that, I am pleased to turn today's call over to Mr. Abu-Ghazaleh.

Thank you, Claudia. Good morning, everyone. We are pleased with our nine-month 2023 results, marked by more than 140 basis points improvement in adjusted gross margins, solid adjusted EBITDA and year-over-year adjusted EPS growth. Our results were driven by our focus on operational excellence leading logistical infrastructure and continued improvements in efficiencies and sustainability practices. For the nine months, our adjusted EBITDA increased 14% to $201 million. And our adjusted diluted EPS increased 23% to $1.87. We achieved these strong nine-month results despite facing macroeconomic challenges such as inflationary pressures and escalating weather events such as the floods in Greece, demonstrating our ability to run a profitable global enterprise in the face of large-scale challenges. The third quarter is seasonally our softest quarter. The headwinds this quarter were as follows: the September floods in Greece impacted our seasonal nontropical product scanning facility, which resulted in $8.4 million of inventory write-offs and cleanup costs. Global demand for our third-party ocean freight business softened, which caused a decrease in our other products and Services segments. As a reminder, in the prior year, this segment benefited from elevated shipping rates and demand due to market logistical conditions. Now for the highlights in the third quarter that partially offset these headwinds. Gross margin in the Banana segment during the third quarter was up 250 basis points. Avocados turnaround this quarter were meaningful contributors, thanks to increases in sales volumes, selling prices and gross profit. Our continued solid adjusted EBITDA enabled us to have numerous options for strong asset allocations. We continue to use our healthy cash flow to return value to shareholders through activities such as improving efficiencies, paying down debt and continuing to deliver innovation-led new-to-market products. We also continue to look for ways to optimize our asset base to maximize our shareholder…

Thank you, Mohammad. Good morning, everyone, and thank you for joining us on the call today. I would like to start this morning by providing some background on the seasonality of our business before we jump into the results. We believe the best way to view our business is on an annual basis, not quarterly. Historically, our first and second quarters are our seasonally stronger quarters, while our third and fourth quarters are seasonally softer. The selling price of any fresh produce item fluctuates throughout the year due to supply and demand for that particular item as well as the pricing and availability of other fresh produce items, many of which are seasonal in nature, such as summer months when competing seasonal fruit is abundant. Last year was an atypical year for our company in terms of seasonality due to the high inflationary environment we faced and a lag in price increases, which resulted in an unusually soft first and a stronger second half of the year. So far this year, our results are consistent with historical trends where we have realized a greater portion of our net sales and gross profit during the first two fiscal quarters of the year. With that, let's move on to our third quarter 2023 results followed by our nine-month results. Net sales for the third quarter of 2023 were $1 billion compared with $1.54 billion in the prior year. Net sales for the first nine months of 2023 were $3.3 billion compared with $3.4 billion in the first nine months of '22. In both periods, the net sales variance was primarily driven by lower sales volume in the fresh and value-added product segment and a decrease in sales in the other products and Services segment due to the softened global demand of our…

[Operator Instructions] Our first question comes from the line of Mitch Pinheiro. Your line is now open.

Yes, hey, good morning.

Good morning, Mitch.

I wanted to talk first question about bananas. So we're in the same quarter. And here, we had North America, we had lower prices and lower volume. And in Europe, we have higher prices and higher volume, which really is counter-tally normal elasticity expectations. So could you just talk about why these two markets behave differently in the quarter? And related to that, what we should expect here in the fourth quarter?

Mitch, the -- let's -- in Europe, we have fixed contracts for most of the volume that goes into Europe regularly. So the margins and the prices are more or less fixed and not fluctuating. In the U.S., of course, a majority of our supplies are on contract basis with retailers and buyers. However, part of that also volume goes into the spot market. And during the last couple of months, there has been, I would say a soft market in the U.S. and consumption of bananas has been, unfortunately, on the decline side as we speak. And that's why prices have been adversely affected. But as Monica mentioned, Mitch, that the most important thing that we need to focus on is really an annual basis rather than transactional or quarter-to-quarter basis because that will give you a better picture at the end of the year, how the operation performed rather than just taking quarter per quarter. We are in produce business. We are CPG consumer goods manufacturers. So we are always influenced by market and climate. And one of the things that Monica mentioned about Greece at the flood and we took a write-off of over $8 million. But really, on the other side, we have also insurance, €10 million that we are going to be recovering. So these losses you see today will be recovered in the next three or four months -- I mean, in the next few months. So we don't want the picture to be kind of clouded or misguided. I mean we state the facts as they are today, but we have also contingency plans like the insurance that covers that damage of that loss and even we have support from the Government of Greece to also cover other losses, be it machinery and material. So all in all, I'm very optimistic about the -- and the quarter itself is not too bad compared to the conditions and the environment around us. And going forward, I have very high confidence in our delivery and our performance.

Why do you think volumes are down in the U.S.? And they've been soft for a little bit, is there something going on, just generally speaking, with the consumer?

We got about 2% decline in volumes or in consumption. And we don't know really the reasons for that, except that either the people are spending on other items or focusing on other types of fruits during this period. But this has been a pattern that we have witnessed over the last couple of years.

Okay. And then -- so if you look at the business on an annual basis and the bananas in particular, again, for a second. Typically, I've covered you for a long time. And I've always thought that gross margins would be in 4% to 6% annualized range and generally around 6%. But for the last couple of years, you've been on the higher end of that. Last year, your banana business been 7.4% gross margin. And this year, it's looking good, looking that or better. So what do you think it is driving the banana margins to above historic level range? Are we -- anything you're doing internally, whether it's buying more of your own fruit versus purchase fruit? Is there efficiencies in the field? Is it just pricing? Can you talk a little bit about that?

Yes. Well, to start with efficiencies in the field, that is one major item. Secondly, we are more kind of streamlining and more efficient in supply and demand kind of alignment. In the prior years, especially during the second half of the year, there have always been oversupply of bananas through improper, let's say, planning and meeting kind of demand and supply. In the last couple of years, last year and this year, we are efficiently and better managing the supply and demand side of the story. So our margin has improved significantly because mainly of our efficiency in terms of meeting only the demand and rather than having oversupply in the market. Among other things that we are doing, of course, with logistics and other issues in terms of cost structure. But that's why -- and we believe this will continue to improve as we go forward.

Okay. So you think it's sustainable, like the higher end of the range kind of level from year to year?

Yes, yes.

Okay. And then if you could talk, Mohammad, your -- what's going on in the Middle East, I mean, how is that going to affect your business in the near-term?

It's really marginal. I mean where we are -- our major markets are in the Gulf and Turkey and other areas that is not influenced by what is going right now. And we don't see really any kind of significant or material impact on our business in this part of the world right now.

Okay. And then just last question for me, and I'll get back in the queue. But on the Fresh and value-added business, you continue to -- I mean, year-over-year and sequentially, the margins were down, but you're making some nice progress there climbing back to where I think, you think the business ought to be. Is -- are there any headwinds for that business in the fourth quarter? And can you talk about how the margins are going to look next year roughly? I mean are we going to see continued improvement? Is there any other headwinds that we need to know about?

Not really. I think that we are doing well. We are going into new -- as I speak, new kind of transactions and joint ventures as we go into the new year, that will improve our margin and improve our kind of utilization of our assets, and that's the most important thing, resources and assets. And I think that for '24, we are very confident about the future. We are definitely going in the right direction.

And where do you think, by the way, that's this thing, but where do you think margins can go longer term in the Fresh and value-added business?

I would go for about our target and our objective is to reach about 12% of the gross margins.

Okay. So still a lot of upside left there?

Yes.

Okay, thank you. I'll get back into queue.

Thank you, Mitch.

I will now turn the call back over to Mr. Abu-Ghazaleh for closing remarks.

Thank you very much, everyone and it was a pleasure to talk with you today. And hopefully, we can join again on our next call. Thank you and have a good day.

You may now disconnect.