Del Monte Corp 10-Q for FY2020 Q1

Del Monte Corp (DMC)

10-Q 2020-04-29 For: 2020-03-27

Added on April 06, 2026

About this 10-Q

Del Monte Corp filed this 10-Q on April 29, 2020, covering the quarter ended March 27, 2020 (FY2020 Q1).

Headline figures

Quarter ended March 27, 2020, as reported in this filing, compared with the same period a year earlier where the filing states it.

Revenue: $1.12B; down 3.1% from $1.15B a year earlier
Net income: $13M; down 64.0% from net income of $36.1M a year earlier
Diluted EPS: $0.27; down 63.5% from $0.74 a year earlier

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Cayman Islands			N/A
(State or Other Jurisdiction of Incorporation or Organization)			(I.R.S Employer Identification No.)

c/o Intertrust Corporate Services (Cayman) Limited
190 Elgin Avenue
George Town,	Grand Cayman,	KY1-9005
Cayman Islands			N/A
(Address of Registrant’s Principal Executive Office)			(Zip Code)



Title of each class	Trading Symbol	Name of each exchange on which registered
Ordinary Shares, $0.01 Par Value Per Share	FDP	New York Stock Exchange



Large accelerated filer	☒	Accelerated filer	☐
Non-accelerated filer	☐
Smaller reporting company	☐
Emerging growth company	☐



		Page
PART I: FINANCIAL INFORMATION

Item 1. Financial Statements

	Consolidated Balance Sheets (unaudited) as of March 27, 2020 and December 27, 2019.	1

	Consolidated Statements of Operations (unaudited) for the quarters ended March 27, 2020 and March 29, 2019.	2

	Consolidated Statements of Comprehensive (Loss) Income (unaudited) for the quarters ended March 27, 2020 and March 29, 2019.	3

	Consolidated Statements of Cash Flows (unaudited) for the quarters ended March 27, 2020 and March 29, 2019.	4

	Consolidated Statements of Shareholders’ Equity and Redeemable Noncontrolling Interest (unaudited) for the quarters ended March 27, 2020 and March 29, 2019.	5

	Notes to Consolidated Financial Statements (unaudited)	6

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		28

Item 3. Quantitative and Qualitative Disclosures About Market Risk		37

Item 4. Controls and Procedures		38

PART II. OTHER INFORMATION

Item 1. Legal Proceedings		39

Item 1A. Risk Factors		39

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		41

Item 4. Mine Safety Disclosures		42

Item 5. Other Information		42

Item 6. Exhibits		43

Signatures		44



	March 27, 2020			December 27, 2019
Assets
Current assets:
Cash and cash equivalents	$	20.7		$	33.3
Trade accounts receivable, net of allowance of $22.7 and $19.6, respectively	403.1			363.9
Other accounts receivable, net of allowance of $3.5 and $3.4, respectively	78.2			75.1
Inventories, net	559.8			551.8
Assets held for sale	7.6			7.6
Prepaid expenses and other current assets	22.5			19.8
Total current assets	1,091.9			1,051.5

Investments in and advances to unconsolidated companies	1.8			1.9
Property, plant and equipment, net	1,396.6			1,403.2
Operating lease right-of-use assets	171.6			162.1
Goodwill	423.3			423.7
Intangible assets, net	156.2			158.2
Deferred income taxes	104.3			100.3
Other noncurrent assets	50.6			49.0
Total assets	$	3,396.3		$	3,349.9
Liabilities and shareholders' equity
Current liabilities:
Accounts payable and accrued expenses	$	552.2		$	522.2
Current maturities of debt and finance leases	0.3			0.3
Current maturities of operating leases	32.0			32.5
Income taxes and other taxes payable	8.3			7.9
Total current liabilities	592.8			562.9

Long-term debt and finance leases	598.6			586.8
Retirement benefits	97.7			98.1
Deferred income taxes	130.2			129.5
Operating leases, less current maturities	112.4			102.7
Other noncurrent liabilities	98.3			70.9
Total liabilities	1,630.0			1,550.9
Commitments and contingencies (See note 9)
Redeemable noncontrolling interest	55.5			55.3
Shareholders' equity:
Preferred shares, $0.01 par value; 50,000,000 shares authorized; none issued or outstanding	—			—
Ordinary shares, $0.01 par value; 200,000,000 shares authorized; 47,833,237 and 48,014,628 issued and outstanding, respectively	0.5			0.5
Paid-in capital	532.1			531.4
Retained earnings	1,253.8			1,252.7
Accumulated other comprehensive loss	(99.9		)	(65.4		)
Total Fresh Del Monte Produce Inc. shareholders' equity	1,686.5			1,719.2
Noncontrolling interests	24.3			24.5
Total shareholders' equity	1,710.8			1,743.7
Total liabilities, redeemable noncontrolling interest and shareholders' equity	$	3,396.3		$	3,349.9


☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934



	Quarter ended
	March 27, 2020			March 29, 2019
Net sales	$	1,118.0		$	1,154.2
Cost of products sold	1,049.5			1,059.1
Gross profit	68.5			95.1
Selling, general and administrative expenses	52.7			54.3
Gain on disposal of property, plant and equipment, net	0.2			3.5
Asset impairment and other (credits) charges, net	(1.8		)	3.0
Operating income	17.8			41.3
Interest expense	5.4			6.9
Interest income	0.1			0.1
Other income, net	0.8			11.3
Income before income taxes	13.3			45.8
Provision for income taxes	0.3			8.6
Net income	$	13.0		$	37.2
Less: Net income attributable to redeemable and noncontrolling interests	—			1.1
Net income attributable to Fresh Del Monte Produce Inc.	$	13.0		$	36.1
Net income per ordinary share attributable to Fresh Del Monte Produce Inc. - Basic	$	0.27		$	0.74
Net income per ordinary share attributable to Fresh Del Monte Produce Inc. - Diluted	$	0.27		$	0.74
Dividends declared per ordinary share	$	0.10		$	—
Weighted average number of ordinary shares:
Basic	48,011,398			48,547,698
Diluted	48,152,965			48,752,162



	Ordinary Shares Outstanding		Ordinary Shares		Paid-in Capital			Retained Earnings			Accumulated Other Comprehensive (Loss)			Fresh Del Monte Produce Inc. Shareholders' Equity			Noncontrolling Interests			Total Shareholders' Equity			Redeemable Noncontrolling Interest
Balance as of December 27, 2019	48,014,628		$	0.5	$	531.4		$	1,252.7		$	(65.4	)	$	1,719.2		$	24.5		$	1,743.7		$	55.3
Settlement of restricted stock awards	7,374		—		—			—			—			—			—			—			—
Settlement of restricted stock units	102,634		—		—			—			—			—			—			—			—
Share-based payment expense	—		—		2.6			—			—			2.6			—			2.6			—
Cumulative effect adjustment of ASC 326 adoption	—		—		—			(1.2		)	—			(1.2		)	—			(1.2		)	—
Repurchase and retirement of ordinary shares	(291,399	)	—		(2.3		)	(5.5		)	—			(7.8		)	—			(7.8		)	—
Dividend declared	—		—		0.4			(5.2		)	—			(4.8		)	—			(4.8		)	—
Comprehensive income:
Net income (loss)	—		—		—			13.0			—			13.0			(0.2		)	12.8			0.2
Unrealized loss on derivatives, net of tax	—		—		—			—			(30.5		)	(30.5		)	—			(30.5		)	—
Net unrealized foreign currency translation loss	—		—		—			—			(4.5		)	(4.5		)	—			(4.5		)	—
Change in retirement benefit adjustment, net of tax	—		—		—			—			0.5			0.5			—			0.5			—
Comprehensive (loss) income														(21.5		)	(0.2		)	(21.7		)	0.2
Balance as of March 27, 2020	47,833,237		$	0.5	$	532.1		$	1,253.8		$	(99.9	)	$	1,686.5		$	24.3		$	1,710.8		$	55.5



	Quarter ended								Quarter ended
	March 27, 2020								March 29, 2019
	Long-lived and other asset impairment		Exit activity and other (credits) charges			Total			Long-lived and other asset impairment		Exit activity and other charges		Total
Banana segment:
California Air Resource Board reserve⁽¹⁾	$	—	$	1.3		$	1.3		$	—	$	—	$	—
Philippine exit activities of certain low-yield areas	—		—			—			—		0.2		0.2
Fresh and value-added products segment:
Impairment of leasehold improvements⁽²⁾	0.9		—			0.9			—		—		—
Insurance recovery related to product recall⁽³⁾	—		(4.0		)	(4.0		)	—		—		—
Impairment of equity investment⁽⁴⁾	—		—			—			2.8		—		2.8
Total asset impairment and other (credits) charges, net	$	0.9	$	(2.7	)	$	(1.8	)	$	2.8	$	0.2	$	3.0



	Quarter ended
Trade Receivables	March 27, 2020
Allowance for credit losses:
Balance, beginning of period⁽¹⁾	$	8.9
Provision for uncollectible amounts⁽²⁾	0.8
Deductions to allowance related to write-offs	—
Recoveries of amounts previously written off	—
Balance, end of period	$	9.7



	March 27, 2020				December 27, 2019
	Current Status		Past-Due		Current Status		Past-Due
Gross advances to growers and suppliers	$	35.8	$	5.6	$	33.8	$	8.3



Date of award	Shares of restricted stock awarded	Price per share
January 2, 2020	7,374	$	34.42
January 2, 2019	30,891	$	28.32



Date of Award	Type of award	Units awarded	Price per share
For the quarter ended March 27, 2020
March 23, 2020	RSU	2,500	$	33.53
March 2, 2020	PSU	86,954	28.74
March 2, 2020	RSU	161,093	28.74
For the quarter ended March 29, 2019
March 25, 2019	RSU	5,000	$	26.55
February 20, 2019	PSU	85,000	27.71
February 20, 2019	RSU	133,750	27.71



	March 27, 2020		December 27, 2019
Finished goods	$	234.2	$	203.5
Raw materials and packaging supplies	149.7		155.8
Growing crops	175.9		192.5
Total inventories, net	$	559.8	$	551.8



	Term	Maturity date	Interest rate	Borrowing limit		Available borrowings
Bank of America credit facility	5 years	October 1, 2024	2.95%	$	1,100.0	$	501.6
Rabobank letter of credit facility	364 days	June 17, 2020	Varies	25.0		13.6
Other working capital facilities	Varies	Varies	Varies	20.9		11.1
				$	1,145.9	$	526.3


⁽¹⁾	Certain unvested RSUs and PSUs are not included in the calculation of net income per ordinary share because the effect would have been antidilutive.


•	Fresh and value-added products - includes pineapples, melons, non-tropical fruit (including grapes, apples, citrus, blueberries, strawberries, pears, peaches, plums, nectarines, cherries and kiwis), other fruit and vegetables, avocados, fresh-cut fruit and vegetables, prepared fruit and vegetables, juices, other beverages, prepared meals and snacks.


•	Banana



	March 27, 2020			December 27, 2019
Senior unsecured revolving credit facility (see Credit Facility below)	$	598.4		$	586.6
Finance lease obligations	0.5			0.5
Total debt and finance lease obligations	598.9			587.1
Less: Current maturities	(0.3		)	(0.3		)
Long-term debt and finance lease obligations	$	598.6		$	586.8


•	Other products and services - includes our ancillary businesses consisting of sales of poultry and meat products, a plastic product business, and third-party freight services



	Quarter ended
Net Sales by geographic region:	March 27, 2020		March 29, 2019
North America	$	705.6	$	748.8
Europe	171.2		171.3
Asia	113.1		120.7
Middle East	112.4		97.8
Other	15.7		15.6
Totals	$	1,118.0	$	1,154.2



Foreign currency contracts qualifying as cash flow hedges:	Notional amount
Euro	EUR	183.6
British pound	GBP	25.3
Japanese yen	JPY	4,976.0
Chilean peso	CLP	2,915.7
Korean won	KRW	18,535.0



Bunker fuel swap contracts qualifying as cash flow hedges:	Notional amount
0.5% U.S. Gulf Coast	298,438	barrels
3% U.S. Gulf Coast	95,413	metric tons
0.5% Singapore	48,087	metric tons



	Derivatives designated as hedging instruments ⁽¹⁾
	Foreign exchange contracts				Bunker fuel swaps				Interest rate swaps				Total
Balance Sheet location:	March 27, 2020		December 27, 2019		March 27, 2020		December 27, 2019		March 27, 2020		December 27, 2019		March 27, 2020			December 27, 2019
Asset derivatives:
Prepaid expenses and other current assets	$	2.6	$	1.7	$	—	$	—	$	—	$	—	$	2.6	⁽²⁾	$	1.7
Total asset derivatives	$	2.6	$	1.7	$	—	$	—	$	—	$	—	$	2.6		$	1.7

Liability derivatives:
Accounts payable and accrued expenses	$	2.5	$	0.7	$	3.9	$	—	$	—	$	—	$	6.4	⁽²⁾	$	0.7
Other long-term liabilities	—		—		4.4		—		54.8		30.3		59.2		⁽²⁾	30.3
Total liability derivatives	$	2.5	$	0.7	$	8.3	$	—	$	54.8	$	30.3	$	65.6		$	31.0



Derivatives in cash flow hedging relationships	Amount of gain (loss) recognized in other comprehensive income on derivatives (effective portion)						Location of (loss) gain reclassified from AOCI into income (effective portion)	Amount of gain (loss) reclassified from AOCI into income (effective portion)
	Quarter ended							Quarter ended
	March 27, 2020			March 29, 2019				March 27, 2020			March 29, 2019
Foreign exchange contracts	$	(1.1	)	$	3.3		Net sales	$	1.0		$	0.9
Foreign exchange contracts	0.2			0.6			Cost of products sold	0.6			—
Bunker fuel swaps	(8.3		)	—			Cost of products sold	—			—
Interest rate swaps, net of tax	(21.3		)	(9.2		)	Interest expense	(1.2		)	(0.4		)
Total	$	(30.5	)	$	(5.3	)		$	0.4		$	0.5



	Fair value measurements
	Foreign currency forward contracts, net asset				Bunker fuel contracts, net liability					Interest rate contracts, net liability
	March 27, 2020		December 27, 2019		March 27, 2020			December 27, 2019		March 27, 2020			December 27, 2019
Quoted prices in active markets for identical assets (Level 1)	$	—	$	—	$	—		$	—	$	—		$	—
Significant observable inputs (Level 2)	0.1		1.0		(8.3		)	—		(54.8		)	(30.3		)
Significant unobservable inputs (Level 3)	—		—		—			—		—			—



	Changes in Accumulated Other Comprehensive Income (Loss) by Component ⁽¹⁾
	Quarter ended March 27, 2020
	Changes in Fair Value of Effective Cash Flow Hedges				Foreign Currency Translation Adjustment				Retirement Benefit Adjustment			Total
Balance at December 27, 2019	$	(25.5	)		$	(15.8	)		$	(24.1	)	$	(65.4	)
Other comprehensive (loss) income before reclassifications	(30.1		)	⁽³⁾	(4.5		)	⁽²⁾	0.2			(34.4		)
Amounts reclassified from accumulated other comprehensive (loss) income	(0.4		)		—				0.3			(0.1		)
Net current period other comprehensive (loss) income	(30.5		)		(4.5		)		0.5			(34.5		)
Balance at March 27, 2020	$	(56.0	)		$	(20.3	)		$	(23.6	)	$	(99.9	)

	Quarter ended March 29, 2019
Balance at December 28, 2018	$	(5.8	)		$	(14.9	)		$	(20.9	)	$	(41.6	)
Other comprehensive (loss) before reclassifications	(3.6		)	⁽³⁾	(0.8		)	⁽²⁾	(0.2		)	(4.6		)
Amounts reclassified from accumulated other comprehensive (loss) income	(0.5		)		—				0.1			(0.4		)
Net current period other comprehensive (loss)	(4.1		)		(0.8		)		(0.1		)	(5.0		)
Balance at March 29, 2019	$	(9.9	)		$	(15.7	)		$	(21.0	)	$	(46.6	)



	Amount reclassified from accumulated other comprehensive (loss) income
	March 27, 2020			March 29, 2019
Details about accumulated other comprehensive income (loss) components	Quarter ended			Quarter ended			Affected line item in the statement where net income is presented
Changes in fair value of effective cash flow hedges:
Foreign currency cash flow hedges	$	(1.0	)	$	(0.9	)	Net sales
Foreign currency cash flow hedges	(0.6		)	—			Cost of products sold
Interest rate swaps	1.2			0.4			Interest expense
Total	$	(0.4	)	$	(0.5	)

Amortization of retirement benefits:
Actuarial losses	0.3			0.1			Other expense, net
Total	$	0.3		$	0.1



	Quarter ended
Region	March 27, 2020				March 29, 2019
North America	$	705.6	64	%	$	748.8	65	%
Europe	171.2		15	%	171.3		15	%
Asia	113.1		10	%	120.7		10	%
Middle East	112.4		10	%	97.8		9	%
Other	15.7		1	%	15.6		1	%
Totals	$	1,118.0	100	%	$	1,154.2	100	%


◦	Net sales of meals and snacks decreased principally due to product rationalization in our Mann Packing operations in North America which resulted in the discontinuance of low margin production combined with the impact of the COVID-19 pandemic and the continuing impact of the 2019 product recall.


◦	Net sales of avocados increased due to higher per unit sales prices in North America primarily as a result of lower industry supplies from Mexico and Chile. Also contributing to the increase in net sales were higher sales volumes and per unit prices in Asia primarily due to higher customer demand. Partially offsetting this increase were lower sales volumes in North America.


•	Banana - Net sales of bananas decreased by $4.5 million principally due to lower net sales in Asia, Europe and North America partially offset by higher net sales in the Middle East. We estimate that COVID-19 negatively affected our banana net sales by $6.0 million during the first quarter of 2020 when compared to our original expectations. Worldwide banana sales volume increased 1%.


◦	Asia banana net sales decreased primarily as a result of the closure of ports in China due to the COVID-19 pandemic combined with lower volumes from independent growers in the Philippines.


◦	Europe banana net sales decreased due to lower sales volumes and lower per unit sales prices primarily as a result of lower industry supplies during the beginning of the year and the effect of the COVID-19 pandemic which negatively affected demand during March.


◦	North America banana net sales decreased slightly due to lower sales volumes principally as a result of lower supplies from our Central America operations, partially offset by higher per unit sales prices.


◦	Middle East banana net sales increased due to higher sales volumes as a result of increased shipments from Latin America to new markets in the region. Partially offsetting this increase were slightly lower per unit sales prices.


•	Fresh and value-added products - Gross profit in the fresh and value-added products segment decreased $19.0 million principally due to lower gross profit on fresh-cut vegetables, avocados and melons, partially offset by higher gross profit on prepared products.


◦	Gross profit on fresh-cut vegetables decreased primarily due to lower sales volumes in North America combined with higher costs, principally consisting of inventory write-downs related to the COVID-19 pandemic.