Good day, everyone and welcome to Fresh Del Monte Produce Third Quarter 2024 Earnings Conference Call. Today's call is being broadcast live over the Internet and is also being recorded for playback purposes. All lines have been placed on mute to prevent any background noise. And after the speakers' remarks, there will be a question-and-answer session. [Operator Instructions]. For opening remarks and introduction, I would like to introduce -- I would like to turn today's call over to the Vice President, Investor Relations with Fresh Del Monte Produce, Ms. Christine Cannella. Please go ahead, Ms. Cannella.

Thank you, Krista. Good morning everyone, and thank you for joining our third quarter 2024 conference call. Joining me in today's discussion are Mr. Mohammad Abu-Ghazaleh, Chairman and Chief Executive Officer; and Ms. Monica Vicente, Senior Vice President and Chief Financial Officer. I hope that you had a chance to review the press release that was issued earlier by Business Wire. You may also visit the company's IR website at investorrelations.freshdelmonte.com to access today's earnings material 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 earnings presentation, which is available on our website. I would like to remind you that most 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 31 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 2024 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.

Thank you, Christine, and thank you for joining us for our third quarter '24 earnings results. As we reflect on the third quarter of 2024, I am pleased to report that we continue to see solid performance across key areas of our business. Despite certain challenges in the broader market, Fresh Del Monte has remained resilient and focused on delivering value to its shareholders. I would like to address the important update we shared earlier this week regarding Mann Packing. As we have finalized the strategic path forward for our vegetable division. After a comprehensive review of our operations, which included exploring various potential avenues, we decided on a three pronged approach to streamline Mann Packing. This includes consolidating facilities, refining product offerings, and divesting excess assets. By becoming more efficient, we aim to improve profitability, elevate our business offerings, and deliver even greater value through innovation, reinforcing our commitment to future growth, operational excellence, and staying ahead of evolving customer and consumer demands. Having covered this important update, I would like to shift focus to our third quarter performance. Compared with the prior year period, gross profit was up by 26%, driven primarily by our Fresh and Value-Added product segments. Net income attributable to Fresh Del Monte Produce was $42 million for the quarter compared with $8 million in the same period last year, reflecting more than 400% increase. Starting with our Fresh and Value-Added product segment. Fresh Del Monte continues to solidify its position as the global leader in pineapples. Our Honeyglow Pineapples and PINKGLOW Pineapples are prime examples of the kind of innovation that drives our business. These varieties have become consumer favorites, contributing to strong demand and reinforcing our leadership in this space worldwide. In fact, demand for our pineapples continues to outpace supply. We're actively…

Thank you, Mr. Abu-Ghazaleh, and good morning, everyone, and thank you for joining us on today's call. Let's begin with an update on our Mann Packing operations. We recently finalized our decision, which includes the consolidation of three facilities into a single facility at our Gonzales, California location. This move allows us to streamline operations and enhance overall efficiency. We anticipate these actions will allow us to improve our profitability by approximately 15 million to 20 million annually beginning in 2025. As part of this decision, we will discontinue several product lines and have agreed to sell certain assets of Fresh Leaf Farms, a wholly owned subsidiary of our Mann Packing business. The assets sold as part of the transaction include a manufacturing facility and equipment in Arizona as well as the Fresh Leaf Farms brand. And we will be exiting two lease facilities in California. The sale, which is subject to customary closing conditions is expected to close in November of 2024. Now that we've covered the update on Mann Packing operations, I'd like to shift the focus to two other important topics. First, I'll address the ILA strike, and then I'll move to discuss the effects of recent weather related events in the U.S. The ILA strike, which affected the east and gulf ports in the United States during the third quarter, caused a three day disruption. However, we experienced no disruptions in the ports we utilized in these areas during the strike. Shifting now to the recent weather related events. In July 2024, Hurricane Beryl, a category 1 storm, impacted the Houston and Dallas, Texas area, causing adverse weather and power outages, including at our Houston facility. This disruption necessitated the rerouting of inventory and adjustments in our logistics and transportation plans. Despite these challenges, the financial…

Thank you. We will now begin the question-and-answer session. [Operator Instructions]. Your first question comes from the line of Mitch Pinheiro with Sturdivant & Co. Please go ahead.

Yes, hello there. Good morning, everybody.

Good morning.

So I have a bunch of questions. I guess, first, just, I appreciate the update on Mann Packing. My question was, did I hear this right, Monica, that you expect to save $15 million to $20 million is or that an increase in gross profit next year as a result of all these actions?

Correct. That's our estimate for next year based on the consolidation and reducing some of our product lines.

No. Didn't you guys already consolidate some of the Mann facilities in a year ago or two years ago? Or is am I, misremembering?

We did some consolidation, but this further consolidates three facilities into one and then we're selling some of the excess assets for the [indiscernible] operation.

Okay. And so you're going to have one facility at the end of all this. You'll have just one facility. And all of this savings or increase in gross profit, it's all due to the fixed cost consolidation? There's no other -- there's nothing else going on there or is there?

Mitch, good morning.

Good morning.

We used to have four to five facilities before the consolidation. We used to have, across the facilities, transportation, and logistic cost, we used to have inefficiencies. We used to have a very, difficult situation with the supply chain. Now as Monica just mentioned, we consolidated everything under one roof. All our product lines will be producing one under one roof. All the shipments will go from one location, and that's why, Monica just mentioned that we could expect $15 million to $20 million in savings going forward, which means going to the bottom line, ultimately.

Great.

And, Mitch, yes and there's still room for growth. So this is based, like you say on overhead savings, and this is what we expect on just that, and there's still room for growth in the facility.

And then just one last question on that, is just is this, so that $15 million to $20 million was for all of 2025. Is it sort of back end loaded or should we expect to see, like an even level, $4 million or $5 million a quarter, throughout the year? How should we look at that?

Well, it depends on the seasonality of the product lines. But, I would estimate that should be in that region, Mitch. But overall, it would be on annual basis.

Okay. And then, you had a great quarter in the Fresh and Value-Added segment, and I'm curious, I don't I haven't seen the Q yet. I guess we'll get that later today or but, it looked like it was mostly, a lot of it was pricing driven in the avocado, pineapple, and fresh-cut. I was curious what the volumes were in avocado, pineapple, and fresh-cut?

The increase was also -- was actually very significant and volume driven. Pineapple volume, fresh cut volume. So it was both volume and pricing, but significantly volume driven.

Okay. So, okay. I'll have to wait till the queue comes up. So, I mean, is it half and half I mean [indiscernible].

No, it’s a primarily volume.

Okay. Good. Okay. Thank you. And then the gross profit, still double-digit. It did decline sequentially. Is that just normal sort of product mix seasonality that causes that?

Yes, seasonality. If you go back to other Q3, Q3 usually has a lot of competition from other fruits from summer fruits that are out there that people switch to. So usually, Q3 has a lower, margin. So we're very proud of the fact that we were able to achieve this margin this quarter because it's not a an easy quarter.

Right. So does, so should, is double-digit gross profit in your fresh cut, like, sort of the new bottom end of the range?

I believe so. And that's what we're driving forward.

Okay. And then, I mean, obviously, the business that you're in, there's a lot of variability. But so it sounds like 10% on the bottom over time, and then you said low teens gross margin. Did I hear that right, as a goal?

In the fresh and value added. Yes, we were over time, we strive to have in the low teens for the fresh and value added product segment, which obviously has a mix of different products. And we're improving the mix as you can see by the improved margins.

Products and services.

Okay.

Products and services.

Does over time is that I mean, like should -- is that a long time or are we going to see, like, maybe hitting the high end of the range in a couple years? Like, not too far out or is that just a long-term goal?

No. As we said, we are just like I mentioned in my, what I presented right now, Mitch, that we are in a new chapter in our business, let's say, outlook. We are going into many new products, utilizing and leveraging our biomass and other areas, that we are venturing in, that it's very promising. It would take its time to mature and to develop, but we are already initiating the process. It's already in motion. Just like we started the Fresh Cut 20 plus years ago, that was zero business when we started. Now it's almost over $500 million business. And that's the kind of trajectory that we are aiming for other -- for the new businesses or the new initiatives that we are taking right now. So it might take to see starting to see results. Hopefully by end of ‘25, we'll see something. And then going forward, there will be a progress and development, and of course, further improvements in the margins and the product, let's say, offering that we would be putting on the market.

And if I add to that, Mitch, remember the demand business, the fresh cut vegetable business is in the fresh and value added product segment. So by with the steps we're taking, that will take out cost for 15 million to 20 million annually in that segment. So that in itself will improve margins next year.

Right. And then, you've done a very nice job innovating, certainly on the pineapple side, you can see it. But it does take a while to grow out these new innovative varieties. How -- obviously, we don't disclose the amount of these new products, but Pineapples is like, what, a $625 million business for you. Like, what can you give us some sort of sense for, like the sales level of the new products or where you think they could be in a year? I mean, obviously, they're very high margin for you, but where do you think the sales level of these new like innovation?

Well, we cannot disclose such information, Mitch, but we are very confident of our progress. And like we said, in general updates, our margins would be quite high. And like, Monica said, it will be in the, low teens, going forward. So that can be our position.

Okay. All right. And when it comes to the Banana business, I may have missed the outlook, Monica, when you gave. Is for the full year 2024 sales to be down 5% to 7%. Is that what I heard with most of that?

Actually, volume. Yes, sorry, with volume, what I said was, where's my volume? 4% to 5%, 5% to 7% volume lower than last year and then 4% to 5% lower pricing. So in total, it's 9% to 12%, which is consistent with what we said last quarter.

Yep. And like the Banana business, I mean, you've done a nice job deemphasizing the Banana business. Like, 10 years ago, I think it was almost 50% of sales, and it's closer to 35% now. So you've done, a nice job of that and not sacrificing a lot of gross profit. But, where any -- can you provide a little outlook on the Banana business as far as maybe why consumption just remained sluggish down a little bit. Is there -- is it just we have more fruit competition, or is there just retiring on bananas as a civilization? Like, why are volumes down, and/or maybe are we getting better at less waste? And so, we need less volumes. Can you talk about that a little bit?

Yes. But, Mitch, the banana actually consumption, maybe in some type of the year, there was a dip in the consumption. But overall, bananas are still consumed in very big volume and still a very important item in the supermarket shelves. However, what you have to notice is that banana course has been climbing up over the last three, four years nonstop. And I can tell you, Ecuador, for instance, the official price that the government have established for this year has been raised every year, since the last three years have been raised from annual basis. So banana cost is increasing -- it’s not being increasing. I mean, if you look at the worldwide. If you look at the big macro picture in different parts of the world, the Philippines has been hit by the disease, with the Panama disease, which is reducing their production and their volume year-over-year. The same thing in Ecuador now, they are having, some issues with electricity shortage, power shortage, water as well has been kind of less rainfall for the last few months, and this is also impacting production. If you look at, countries like Costa Rica, we cannot grow anymore bananas. It's already, they land there. It's restricted, and there is no more to grow. Guatemala more or less in the same situation. So if you look at the map worldwide, I predicted few years back that banana prices or the cost of bananas will become almost $20. And I still believe, and I'm still sticking to my prediction that banana will come to a point where it becomes really an expensive product to produce. So I'm not too, we as a company, we are very kind of rational. We look at our bottom line, and we conduct our business accordingly. So whether we can increase our volume or decrease our volume based on our outlook and how we would like to commercialize the fruit. I mean, it's easy to increase volumes by 200,000, 300,000 a week into North America, but that means you have to sacrifice and compete on that, which is not our objective. Our objective is to maintain our feasible margins of bananas and increase our other products and other offerings with much higher margins than bananas in particular. But that doesn't mean that we will get out of bananas or forget bananas. We might come back and grow into bananas. And we have other areas in the world where we are growing, which we cannot disclose at this stage, but that will make a big difference in a couple of years from now.

And then just a quick update, where we are with some of your newer ventures, whether it's fertilizer and things like that. Where are we on that? Just I'd love an update.

Yes, our Kenya operation, we started about three months ago our operation in Kenya, and they buy fertilizers plant there. We started producing products in trial basis now. We are using some of these products on our own plantation before going to the market. It's very promising. Our partners in Spain are a very big help into formulating the products and registering into different countries. So we are very optimistic on that front. It will take some time, but we are on the right track. Other projects that are undergoing as well, we can hopefully, sometime next year, we can start disclosing and updating you on the new projects that is in the pipeline.

Okay. That's all I have. Thank you.

Thank you, Mitch.

Thank you, Mitch.

Ladies and gentlemen, that does conclude our question-and-answer session. And now I'd like to turn the conference back over to Mr. Mohammad Abu-Ghazaleh for closing comments.

Thank you very much for joining us today and look forward to, talk to you again on our next call. And have a good day. Thank you.

Ladies and gentlemen, this does conclude today's conference call. Thank you for your participation, and you may now disconnect.