"

"

"

"

" Sturdivant & Co., Inc., Research Division

Good day, everyone, and welcome to Fresh Del Monte Produce's Third Quarter 2025 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, Ms. Christine Cannella. Please go ahead, Ms. Cannella.

Thank you, Regina. Good day, everyone, and thank you for joining our third quarter 2025 conference call. Joining me in today's discussion are Mr. Mohammed Abu-Ghazaleh, Chairman and Chief Executive Officer; and Ms. Monica Vicente, Senior Vice President and Chief Financial Officer. I hope that you have had a chance to review the press release that was issued earlier 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 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 29, 2025, 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 2025 financial results, followed by a question-and-answer session. With that, I will turn today's call over to Mr. Mohammed Abu-Ghazaleh. Please go ahead.

Thank you, Christine, and thank you for joining us for our third quarter 2025 earnings call. We delivered another quarter of steady progress supported by strong execution across our portfolio. We saw continued gross margin expansion in our fresh and value-added product segment, and our pineapple program continues to perform well. Overall, our third quarter results affect our ongoing shift towards higher-margin value-added categories, a key driver of profitable growth. We also took important steps this quarter to enhance long-term productivity and strengthen our financial performance. Most notably, we entered into an agreement to divest the operations of Mann Packing, a business that has not met our profitability expectations. We believe this divestiture will strengthen our overall margin profile and enhance capital efficiency going forward. While these decisions are never easy, they underscore our disciplined approach to managing performance and ensuring that every part of our business contributes meaningfully to our bottom line. I would like to discuss a challenge facing the entire industry, the mounting pressure on global banana production, which I addressed last quarter and has since then only intensified. [Indiscernible] Tropical Race 4, which is known as TR4, was confirmed in Ecuador, one of the world's largest banana producers, making a serious escalation in Latin America after previous detections in Colombia, Peru and Venezuela. It is a highly contagious soil ball disease with no cure, and it's already destabilizing the region. In Peru, where TR4 was first detected in 2021, the impact is noticeable in the Pura region, the country's leading producer of organic bananas. A recent study found that 45% of farms are already infected and about 10% have been completely eradicated. Small growers are under mounting pressure as black sigatoka spreads and TR4 reaches new countries. With already thin margins across the sector, rising disease…

Thank you, Mr. Abu-Ghazaleh, and good morning to everyone, and thank you for joining us today. Before reviewing our quarterly financials, I'd like to highlight several strategic actions we took during the quarter to strengthen our portfolio and drive long-term value. We took important decisions to streamline operations and reallocate capital towards higher-performing areas, which resulted in an impairment charge totaling $56 million. $18 million relates to the planned divestiture of Mann Packing, which Mr. Abu-Ghazaleh already mentioned. This supports our strategy to simplify operations and prioritize higher growth, higher-margin categories. We acquired Mann Packing in 2018 and have now entered into an agreement to sell the business, including substantially all operating assets. The buyer, Church Brothers Farms, will acquire machinery and equipment and customer list for $19 million plus the value of inventory at closing. The transaction excludes certain real property, including our Gonzales, California facility, which we've agreed to lease for under a 5-year agreement with a renewal and purchase options. This divestiture is expected to close during the fourth quarter of 2025, subject to customary closing conditions. Mann Packing contributed $174 million in net sales during the first 9 months, but was a headwind to our strategic margin targets for the fresh and value-added products segment. We had previously pursued streamlining efforts. However, after further evaluation, we determined that a full divestiture better aligns with our long-term strategy. During the quarter, we also recorded $37 million in impairment and other charges related to underperforming banana farms in the Philippines, which served our Asia and Middle East markets. Despite efforts to improve yields and manage costs, the farms continue to underperform, impacting profitability. After reassessing performance, we made the decision to abandon operations at these farms. This move enables us to reallocate resources to more productive supply channels.…

[Operator Instructions] Our first question will come from the line of Mitch Pinheiro with Sturdivant & Company.

So I want to start out with a look at the fresh and value-added segment. So the adjusted gross margin was kind of eye-opening at 13.9%. And I know you're sort of guiding 11% to 13% as sort of your gross margin expectation. But is -- I guess is 13% the new normal for this business?

I think we're getting there, Mitch. I think we'll be getting very close to that margin consistently. So yes, you can see that the adjusted gross margin this quarter was very -- like you said, it's an eye-opening now that we've excluded mann. So we do expect to be very close to the 13%. We're still being cautious. We're doing the 11% to 13%, but we feel confident about this segment.

And so I haven't seen the Q yet, but I'm curious Pineapples, obviously, the supply has been down right now, but you're getting some pricing. Are your costs up in pineapples as well? Like you talked about the bananas and more cost for -- on the -- at the farm level. But is there -- and actually at the port shipping, but are pineapple margins still going to be your strongest of your -- in that segment?

Yes, that's a fact. And when it comes to cost, cost, the pineapple, thanks God, doesn't have the same diseases or same kind of plagues that is happening to the bananas. So we don't see increases in terms of applications of certain chemicals to our farms in the pineapple business. So pineapple does not definitely, there is inflation adjusted cost increases, which is normal on the labor side or other services. But all in all, it's a normal kind of environment. So we don't expect significant cost increases on pineapples. And you are right, I mean, the pineapple category is -- volumes are more or less static. And the demand is, in general, outstripping supply. So as we speak today, we don't have enough to allocate to every customer that we have. So it's more selective today than being in the past.

Yes, I've noticed you were obviously the leader in sort of innovation in pineapples and the marketing around it, but I'm also seeing some of your competitors start to -- like, I guess, do start to try to emulate some new product varieties. And I was wondering if it's essentially raising the value of the fruit with continued innovation and improved quality. Is that -- do you get the sense consumers notice that?

Well, yes, of course. I mean we yes, I mean the better -- the better fruit that you deliver to the market, the more ripe, the more higher sugar content, better sweetness or taste definitely have an influence on the consumption and the buyer kind of appetite to buy it. I mean there is no question that -- I think as Del Monte, we have been pioneer at the forefront of innovation and development. And I wish everybody else good luck with whatever they are doing. But I mean, Del Monte has a history of being the forefront into this. And I think that will remain in place.

And you still see from a supply point of view, when -- what's your best estimate for when you start to see demand supply recover?

I don't think that supply is going to -- as we go forward years ahead, there is not too much land left. I mean, in Costa Rica, we cannot double production, for instance. It's impossible or let's say, 20% or 30% more than what is happening right now. And Costa Rica is the major producing country in all Latin America. So -- and it's not easy to grow pineapples anywhere you want. Land is restricted. Environment as well concerns are part of this restrictions on additional acreage or additional production. So I believe consumption on a global level is going to increase. And we see that actually not only in North America, but we see that in Europe. We see that in the Middle East. We see that in Asia. It's a growing, let's say, commodity. It's becoming more fashionable for people to eat more pineapples and especially because of the good quality of these pineapples today. So I can tell you, the Middle East, we are almost 100% -- almost 100% in the market. I mean -- and because of our proximity from Kenya into these markets, -- our Brazilian plantations are in progress right now. And what, 3 years from now, we will start having production out of Brazil, which will be the only company anywhere in the world that has production of ND2 gold pineapple in Brazil. So that will kick in. It may take some time, but I think that will be very significant for us going forward in the future. And we are looking at other areas of expanding pineapple as well as we speak. So I mean, in terms of our positioning in the pineapple, I'm very confident and comfortable actually with our pineapple business going forward in the future...

Okay. And then just two more questions on the fresh and value-added. Avocados, I know supply is strong and pricing has been down. Do you see that kind of reversing here in the next 6 months as you see pricing firming, I should say?

It could happen because actually, with Peru increasing volumes, with Colombia increasing volumes and other countries, Chile and California and the Mexicans did not have that opportunity. I mean if you look at the prices year-over-year, I think that period, we were talking about $70, $60, $70, $80 a box of avocado. -- now it's selling for almost half of that. So you can see the impact on the revenue itself. I mean, as a seller ourselves, of course, that would impact our revenue, selling the same volume for 80 or 70 or 60 rather than selling at 30 or 35, that makes a huge difference. But there could be maybe a pickup during the next 2-3 months because Mexico will be more or less exclusive in one way in terms of supply to North America. But I think it will not be a long-term kind of escalation in prices. I think that prices will remain more or less in the region that we are seeing right now between maybe $30 and $50, but not more.

And remember, Mitch, we buy the product from the grower. So we have the margin based on what we buy and sell. So even though the sale price is much lower, our cost is lower as well. So our margins have stayed pretty more or less even from last year. So unfortunately, it impacts our sales, but our margin is not impacted as much.

Yes. And then -- so -- but with pricing coming down, shouldn't that -- would you expect to see stronger volumes consumption?

Well, I don't see the prices of the retail to be really reflecting that adjusted.

Yes, I'm a big buyer of avocados, and I'm still paying the same...

Okay. And just switching gears to -- I did want to ask about how your fresh-cut fruit business is doing. I didn't see any comments around that.

They're doing -- yes, Freshcut is doing excellent as well. Like you know, we view that together with the pineapple as one of the primary products, and it performed very well during the quarter, and we expect to continue with a strong performance.

I don't remember if I mentioned earlier last year that we started fresh guacamole offering fresh guacamole in the market. And we started this new category, which is 100% fresh guacamole. And it was like -- we started from 0. And today, I think we will end at the end of this year with about $8 million in revenue on that category alone. So that tells you where our innovation is and where we are going. with reasonably good margins.

Yes. I just want to move on to the banana business. So pretty -- you laid out the issues pretty well from a category. What I was curious about was why banana volume or consumption in North America. I'm not sure what it is in Europe, but why consumption is down. I've asked before, we really don't know, I guess, but I was wondering if you have any recent insights as to banana consumption.

Well, it's seasonal, I would believe, Mitch, during the summer with all the summer fruits availability and people usually during the summer would go for more, let's say, like watermelon and melons and grapes and -- so I think it's not a trend. I think it's a hiccup. -- bananas more or less consumption-wise will be stable. I don't believe that we will see a huge drop into banana consumption in terms of consumer appetite. But my -- the problem is that the costs are going up and the prices are not moving in the same direction. So -- and that is the dilemma here. I mean -- and the diseases are not going away. The disease is continuing and spreading and intensifying as a matter of fact. So if you remember a few years back, I said that we will see bananas at $20 a box. We are almost there. I mean, today, if you look at Ecuador, just the fruit alone is around $11 to $12 per box, just the fruit aside from all the other costs of packaging and services. So if you add up everything, you're talking about could be $16, $50, $60, $17 and even more per box. So we are talking about, I mean, substantial increases. And the most important thing, which people do not really focus on is the Sigatoka spread in Central America as well as, as I mentioned earlier, the TR for disease, which it's not if, it's when. It's just a matter of time when it's going to be spreading. And we saw that in the Philippines and the write-off that we took in the Philippines and we saw yesterday, it was because of that. I mean we became -- I mean, the disease has -- no matter what you do, it's like a losing battle against that disease. I mean you can replant and then 3 years later, 4 years later, you lose 3 again. So this is really -- people don't understand and realize how serious this issue is. And this is going to happen, be it tomorrow or after a year or 2 or 3 is going to happen. It's going to come. And I can assure you that, that disease does not stop spreads. It's just a matter of time.

And Mitch, you see our margin for the banana suffered this quarter, and we're projecting closer to 4% for the year. The impact of the Sigatoka is very significant, not only because you have lower volume coming out of the ground, but the cost to protect the farms from Sigatoka is very high. So it's very obvious based on our results, the impact of these diseases.

So one thing -- bananas are obviously, I guess, the largest category of fruit, I guess, in the United States and maybe apples -- but certainly hugely important. And with all these added costs and the margins have always been kind of thin, you'd expect pricing to rise, but there's always been some element of irrationality among all the major players and in pricing, maybe you excluded, but my question is, I noticed that the 4 largest banana producers formed a new organization, VANA, you, Dole, Fs and the other one, whatever it a -- and then -- does that -- is this level of cooperation maybe a sign down the road that there's going to be a little more rationality to the quarter in banana pricing relative to the increase in costs and lower supply?

I don't think that association or that kind of gathering by the 4 banana companies was mainly to streamline the business better and nothing to do with actually influencing volumes or pricing in the market. It's rather than to understand the business better and trying to find solutions in terms of hopefully, agricultural practices and other logistical issues. But the point here, Mitch, people don't understand and don't get it that all of a sudden, one day, everybody will wake up and all of a sudden, there is not enough bananas to -- and we see that in other countries in the world. I mean, I see that in the Philippines. I saw that in Africa. All of a sudden, over years, the banana production is totally lost and/or 50%, 60% down on the previous -- I mean, on the normal trend. And this is going to happen. I mean, we can see that actually as we speak right now in Ecuador. Ecuador is the largest producer of bananas in the world. And right now, you can see that the production is not picking up as it used to be. And that's an indication of what's going on in the industry. And people don't understand that. I've been all my life in this business. And I know and I can anticipate things. And I believe that there will come a time that there will be a huge drop in production. And as you can see, as a company ourselves, we are very careful. We are very stringent, and we are very -- we calculate our steps. I mean we're not here to lose money. I mean we are here to make money to our shareholders. And we will do whatever is necessary to streamline our business in the best way…

So one of the questions is about the Black Sigatoka. -- is one other mitigation effort can be fewer trees, more -- less canopy, more sunlight.

That is exactly what I said earlier, 18 million boxes down in Costa Rica production on a national level. That's mainly because of Sigatoka. It's not because of anything else, mainly because of Sicatoga. So if this happens in Ecuador, if this happens in Guatemala, if this happens in Panama, it's the same story.

Okay. And then just one other question in tariffs. across your entire portfolio, how much did tariffs add to the top line?

We haven't given that number, Mitch, but we were able to pass on the tariffs in North America, but we haven't given the number.

It's really minimal. It's not much. It's minimal.

[Operator Instructions] And that will conclude our question-and-answer session. I will now turn the call back over to Mr. Abu Ghazaleh for closing remarks.

Thank you, everyone. I appreciate joining us today and hope to talk to you in the next call. Have a good day.

That will conclude today's call. Thank you all for joining. You may now disconnect.