Earnings Call Transcript - DOLE Q2 2025

Operator, Operator

Welcome to Dole plc's Second Quarter 2025 Earnings Conference Call and Webcast. Today's conference 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 the call over to the Head of Investor Relations with Dole plc, James O'Regan.

James O'Regan, Head of Investor Relations

Thank you. Welcome, everybody, and thank you for taking the time to join our second quarter 2025 earnings conference call and webcast. Joining me on the call today is our Chief Executive Officer, Rory Byrne; our Chief Operating Officer, Johan Linden; and our Chief Financial Officer, Jacinta Devine. During this call, we will be referring to presentation slides to supplement our remarks. And these, along with our earnings release and other related materials are available on the Investor Relations section of the Dole plc website. Please note our remarks today will include certain forward-looking statements within the provisions of the federal securities safe harbor laws. These would reflect circumstances at the time they are made and the company expressly disclaims any obligation to update or revise any forward-looking statements. Actual results or outcomes may differ materially from those that may be expressed or implied due to a wide range of factors, including those set forth in our SEC filings and press releases. Information regarding the use of non-GAAP financial measures may be found in our press release, which also includes a reconciliation to the most comparable GAAP measures. With that, I'm pleased to turn today's call over to Rory.

Rory Patrick Byrne, CEO

Thank you, James. Welcome, everybody, and thank you for joining us today as we discuss our second quarter results for 2025. So turning first to the highlights for the second quarter on Slide 4. We're very pleased to report another strong performance in the second quarter of 2025 and to have achieved an important step forward in our strategic evolution. Group revenue increased 14.3% to $2.4 billion, and adjusted EBITDA increased 9.3% to $137 million. The quarter saw very strong growth in our two Diversified Fresh Produce segments as well as good growth in Fresh Fruit despite some of the expected short-term challenges that we continued to face. Adjusted net income came in at $53 million, and adjusted diluted EPS was $0.55, a growth of 12% compared to the prior year. On August 5, we were delighted to announce that we completed the sale of our Fresh Vegetable division to Arable Capital Partners. The sale of this business has been a strategic priority for us since 2023, and its completion will now enable us to concentrate our efforts and investments on our core business activities. I would like to take this opportunity to thank the dedicated management and employees of the Dole Fresh Vegetable business for their valuable contributions and commitment, particularly over what has been a complex transaction process over the last number of years. We believe the deal is a great outcome for all stakeholders in this division. So turning now to the operational review and starting with Fresh Fruit on Slide 6. Fresh Fruit delivered a strong performance in the second quarter with adjusted EBITDA of $72.7 million, a result that exceeded our expectations, taking account of anticipated operational challenges. In North America, our underlying operations once again performed well with strong volume growth in bananas and pineapples as well as higher pricing. Growth in adjusted EBITDA was constrained by the anticipated higher sourcing costs following the impact of Tropical Storm Sara and due to the generally tight sourcing market that has developed. In addition, we experienced higher shipping costs in the quarter as we managed the additional logistical complexities of the current sourcing environment while also addressing the temporary vessel operational issue that we flagged on our last earnings call. Turning to European markets, we had a strong quarter with higher volumes in both bananas and pineapples as well as higher pricing across our products, supported by the impact of tight sourcing on the open market price as well as a strengthening of the euro. In both of our core markets, we continued to see very robust demand for our products and expect this to continue over the course of the full year. As noted earlier, industry supply was tighter throughout the second quarter than was previously anticipated and that dynamic has continued into the third quarter. In addition to our own impacts and Tropical Storm Sara, some other industry-specific challenges and less favorable weather conditions in much of Central America as well as strong market demand have all put pressure on industry supply and sourcing costs. Our production and sourcing teams are continuing to do an excellent job mitigating these challenges, but we do expect to have some higher costs in the second half as we work to continue to meet the strong demand that we're seeing from our customers. Turning now to the Diversified EMEA segment. This segment had a very strong start to the year. Adjusted EBITDA increased by approximately 15% in the second quarter to $49 million, driven by strong revenue growth in key markets, including the Nordics, Ireland, the U.K., Spain, and the Netherlands. The segment benefited from the strengthening of the euro in the second quarter. However, on an underlying basis, the performance has also been strong with a like-for-like adjusted EBITDA growth of 8.7% in the quarter. In the second quarter, we continued to see similar operational trends as those in the first quarter. In particular, we continue to see sales into retailing and retail outperforming food service and wholesale channels in most markets. Overall, we see this segment moving in a very positive direction while still having a range of internal and external investment opportunities to drive further growth in the future. Turning now to Diversified Americas on Slide 8. This segment delivered an excellent second quarter, building on the strong momentum we saw in the first quarter. While the good growth we saw in the North American market continued in the second quarter, it was also supported by a very good performance in the Southern Hemisphere export side due to a stronger-than-anticipated conclusion to the season for certain categories as well as a strong start in some of our winter products. Although we expect the rate of growth in the first half of the year to stabilize in the second half, we are confident in the long-term prospects of our businesses within this segment. We believe they're well positioned and we have further opportunities to continue the strong momentum established this year in the years ahead. With that, I'll hand it over to Jacinta to begin the financial review for the second quarter.

Jacinta F. Devine, CFO

Thank you, Rory, and good day, everyone. Turning firstly to the group results on Slide 10. We are very pleased to report a strong result for the second quarter of this financial year. Revenue of $2.4 billion was 14.3% higher on a reported basis, with good growth in our three segments. On a like-for-like basis, revenue increased 12.1%, demonstrating the strong underlying growth and momentum within the group. Operating income increased 20% to $103 million, driven by higher revenue and gross profit and a higher gain on asset sales, partially offset by higher SG&A expense. Net income for the second quarter was $18 million and was impacted by a loss of $35 million in discontinued operations, which was primarily due to a noncash adjustment to the carrying value of the Fresh Vegetable division. We also booked an unrealized foreign currency loss of $19.1 million, which is offset by gains in other comprehensive income. In the quarter, we achieved further asset sales and realized a gain on assets of $9.3 million. Looking now at the non-GAAP performance measures, adjusted EBITDA increased 9.3% with strong growth delivered across the group. On a like-for-like basis, predominantly excluding a positive impact from foreign currency translation of $2.2 million, the increase was $9 million or 7.2%. Adjusted net income increased $6.1 million or 13%, predominantly due to the increase in adjusted EBITDA as well as lower interest expense. Adjusted diluted EPS was $0.55, an increase of 12.2% compared to the prior year. Turning now to the divisional updates for our continuing operations and starting with Fresh Fruit. Revenue increased 14.2%, primarily due to higher worldwide volumes of bananas and pineapples sold as well as higher worldwide pricing of bananas, pineapple, and plantains, partially offset by lower worldwide volumes of plantains sold. Adjusted EBITDA increased 3%, primarily driven by an improved performance in pineapples on a worldwide basis as well as strong growth in banana volumes. These improvements were partially offset by higher fruit costs following Tropical Storm Sara as well as higher shipping costs due to a short-term operational disruption that has since been resolved. The Diversified EMEA segment delivered another very strong result in the second quarter. Reported revenue increased 16.5%, or $155.9 million, primarily due to strong performance in the U.K., Spain, Scandinavia, and the Netherlands as well as a $57.7 million favorable impact from FX, partially offset by a net negative impact from M&A of $9.6 million. Excluding these impacts, on a like-for-like basis, revenue increased 11.4%, or $107.8 million. Adjusted EBITDA increased 14.7% or $6.3 million, primarily driven by increases in the U.K., Spain, and the Netherlands as well as a $2.5 million favorable FX impact. These increases were partially offset by lower earnings in South Africa. On a like-for-like basis, adjusted EBITDA increased 8.7% or $3.7 million. Diversified Americas had an excellent second quarter. Reported revenue increased 8.5% or $30.3 million. Driving this increase was revenue growth in most commodities sold in the North American market, primarily due to volume growth as well as higher revenues in apples exported from South America. On a like-for-like basis, revenue increased 8.8%. Adjusted EBITDA increased $3.3 million or 27%, primarily driven by strong performance in the Southern Hemisphere export business, particularly in apples and citrus, as well as continued good performance in the North American market in kiwi, citrus, and avocados. On a like-for-like basis, adjusted EBITDA increased to 26.6%. Now turning to capital allocation and our balance sheet. Cash capital expenditure from continuing operations was $19.4 million in the second quarter, and an additional $14 million of assets were acquired by way of finance lease. The combined total includes the Honduras farms' rehabilitation, which is supported by insurance proceeds, logistics and warehouse investments primarily in EMEA, and ongoing reinvestments in farming and transport infrastructure. In line with our seasonal working capital trend, we continue to build investments in working capital through the end of Q2. However, the trend was accentuated this year by the strong volume and revenue growth being seen across the business, particularly in the Fresh Fruit segment. As in previous years, we expect to see this unwind as the year progresses while noting that we do expect to see a working capital outflow on a full year basis in 2025 to support the revenue increase we are seeing across the business. The combination of these factors resulted in free cash flow from continuing operations being an outflow of $1 million for the quarter and the increase in net debt to $789 million. We generated cash proceeds from asset sales of $5.3 million in the second quarter. This was primarily related to water infrastructure assets in Hawaii. We have continued to benefit from a downward trend in interest costs. Under the assumption that base rates will remain broadly stable for the remainder of 2025 and having factored in the benefits of our debt refinancing and the additional Fresh Vegetable proceeds, we expect interest expense to be approximately $67 million. Finally, we are pleased to declare a $0.085 dividend for the second quarter, which will be paid on October 6 to shareholders of record on September 15. Now I will hand you back to Rory, who will give an update on our full year outlook.

Rory Patrick Byrne, CEO

Well, we're very pleased with our performance in the second quarter, continuing our positive momentum and putting us in a good place to achieve our full year targets, in what continues to be a dynamic macroeconomic environment. Overall, we're happy with our business; the industry, customers, and suppliers have adapted to the additional complexity being seen in international trade and the macroeconomic environment. While short-term disruptions may persist, we remain confident in the resilience of our diversified business model and in particular, the resilience of the international Fresh Produce industry. Forecasting in this dynamic environment remains complex. So we are pleased to tweak our guidance upwards and are now targeting full year adjusted EBITDA in the range of $380 million to $390 million. Turning to investments, we expect as a baseline to have maintenance CapEx from continuing operations broadly in line with our depreciation expense of approximately $100 million. Additionally, we will have some increased CapEx spend to rehabilitate our farms in Honduras damaged by Tropical Storm Sara last year, albeit significantly supported by insurance proceeds. Circling back to the disposal of the Fresh Vegetables division, this was a key strategic priority for the group, and its completion provides us with enhanced strategic clarity as we move into the remainder of '25 and start to look further ahead. Our core operations are performing well with good momentum and additionally, with important opportunities for both internal and external development. We are excited to refocus our efforts as we look to further grow our business and create value for our stakeholders. I want to conclude by once again thanking all our outstanding people across the group for their ongoing commitment and dedication to driving our group forward. Additionally, I would like to give a special mention to our former colleagues in the Fresh Vegetables business who worked tirelessly to support our corporate team in bringing this transaction to its successful conclusion. As always, we really appreciate all our essential partners from suppliers, customers, and all the stakeholders for the continued support. And with that, I'll hand the call back to the operator to open the line for questions.

Operator, Operator

Your first question comes from the line of Christopher Barnes of Deutsche Bank.

Christopher Jayaseelan Barnes, Analyst

A very strong quarter across divisions and regions. But Rory, to start, could you just help us reconcile the updated outlook on EBITDA? I understand your commentary about the dynamics and complexity of forecasting in this environment. But you also noted that tight supply conditions in Fresh Fruit are expected to continue and have continued into the third quarter and you're positioned well in the diversified businesses. So I'm just trying to reconcile that with the implied decline of 12% to 6% in the back half on EBITDA. So any additional color would be helpful.

Rory Patrick Byrne, CEO

Thank you, Christopher. I want to highlight that we had a very strong 2024, especially in the latter part of the year. We began the year dealing with the effects of Storm Sara in Honduras, and weather issues in Central America have evolved quite a bit, which has affected our sourcing for the safety valve volume. As a result, prices in Ecuador have increased significantly, impacting our sourcing costs due to disruptions in our traditional sources. Forecasting is quite challenging, and until we have more clarity in U.S. international trade relationships with various partners, the market will remain volatile. Managing under these conditions, particularly with fluctuating tariff rates, is difficult. We've adopted a conservative approach to our guidance and will strive to exceed it while considering all influencing factors. We anticipate a weaker Q3 due to tighter supply issues affecting our sourcing platform. I hope that provides clarity, Christopher. We're optimistic overall, but we must be cautious regarding the supply challenges in the Fresh Fruit division.

Christopher Jayaseelan Barnes, Analyst

No, that is helpful. And I guess maybe just to follow up around that. I mean, you mentioned tariffs moving up and down, and pricing in the quarter was very strong. Is there any way to disaggregate how much of that pricing is tariff driven or tariff-related? If we do get relief on tariffs in the future, given the lack of commercially available cultivation of pineapples and bananas domestically. How do you unwind some of that pricing, but how to marry that with the fact that sourcing costs are just higher? I know you mentioned the Chiquita issue in Panama and the situation called out Costa Rican volume and Black Sigatoka. I guess I'm just trying to marry all of that. Are you able to push through incremental pricing given the strength of volumes you've seen? Any additional thoughts would be helpful.

Rory Patrick Byrne, CEO

Yes. We operate in a dynamic world, Christopher. So it’s not just a mathematical case of taking one variable and being able to adjust pricing. Yields can go down; some Sigatoka in Central America and production inputs can go up where it can have an impact. We've seen great volatility on foreign exchange. We've seen some disruption on shipping flows. Duty and tariffs are just another variable to cope with in that equation and goes into the mix of trying to determine our ultimate pricing. There are a lot of variables at play, and luckily we've got a very experienced team who have been able to successfully manage their way through all of those variables with the ups and downs that all of those can bring.

Christopher Jayaseelan Barnes, Analyst

Got it. That's helpful, Rory. And then one final one for me, if I may. Just on the Fresh Vegetables, congratulations on completing the transaction. I know it's been discontinued for a while, but now that it's officially changed hands, how quickly can you start to eliminate some of the stranded overheads and associated costs now that this business is no longer part of your organization? And of the $90 million of cash proceeds that you received, is your thinking still to utilize the majority of that for debt pay down? Or has that thinking changed?

Rory Patrick Byrne, CEO

Yes. In the short term, the $90 million will be used to pay down debt. What it does is it gives us a clearer picture and focused strategic clarity. In terms of capital allocation and what we do now that we have certainty around the outcome of the Vegetable division. It allows us to refocus quickly. It's a long and complex process until it was completed. There was a lot of uncertainty, and we had to have a Plan B in place in the event that we weren't going to be able to get it over the line. All of the issues you raised there in terms of capital allocation provide a clearer path to measure what the appropriate cost structure is for the business that we currently operate, and we will do that as quickly as possible.

Operator, Operator

Your next question comes from the line of Peter Galbo of Bank of America.

Peter Thomas Galbo, Analyst

Maybe just a couple of follow-ups to Chris' questioning. I think on the tight industry supply carrying into the third quarter makes sense, at least on the pineapple and banana side. I'm just curious if you have line of sight beyond the third quarter at this point. Do you have a point in time where you're kind of back to bright, at least on the supply side? Is that Q4? Is that early next year? Any additional comments there would be helpful.

Rory Patrick Byrne, CEO

One of the key things that I have told our investors and analysts is we actually don't look at this business on a quarter-by-quarter basis. The minimum period we would look at is over the course of the year. The overall outcome for our Fresh Fruit division over the course of the year is expected to be more than satisfactory. The current supply disruptions are real and have an impact in Q3 and may go into Q4. But it's amazing how this industry adjusts quickly. So we're hopeful going into next year with contract price negotiation and all the things that must persist, but we'll be able to adjust all of the right variables to continue the underlying financial performance in this division.

Peter Thomas Galbo, Analyst

Okay, helpful. And then on the tariff front, have you had discussions with local government administration or anyone who will listen regarding exclusions for items that cannot be grown in the U.S.? I’ve heard some peers mention discussions that have made progress, but I’m curious if there is anything new on your front.

Rory Patrick Byrne, CEO

We've been saying from the outset that we believe our industry is a very good example of the huge positives of international trade. A year-round supply of healthy products fits well into the concept of making America healthy again or indeed making the world healthy again. We do not believe that the tariffs are focused on our sector. We've heard public statements from the U.S. administration confirming that products like tropical projects, which cannot be produced in the U.S., will ultimately get exempted. There’s a process whereby it hopefully will be part of the individual trade deals that conclude with our source countries. There will be some short-term disruption, but we’ll work through it satisfactorily, and hopefully, over time, it settles down constructively and positively for everyone.

Operator, Operator

Your next question comes from the line of Gary Martin of Davy.

Gary Martin, Analyst

Congrats on the strong set of results and the recent sale of Fresh Veg. I have a few questions on my side. I'll start with the Fresh Veg disposal. Could you provide more color on the deal overall? Perhaps you could give us some details on the timeline of the seller note repayment and the earn-out, and also some background on the retention of the two facilities. Is there a plan going forward? Is it going to be a leaseback?

Rory Patrick Byrne, CEO

The note is a $50 million PIK note with interest accruing at 5%, payable at a fixed maturity date in 5 years' time. Regarding the facilities, yes, it evolved as part of the negotiation for what was a complex transaction where Arable and Organicgirl had to acquire Braga and then simultaneously acquire our business. We've agreed to a 5-year rent-free usage of Yuma and Huron, and thereafter, we'll negotiate a commercial rent or be able to crystallize the value of those assets. Client valuations we received are in the order of $40 million.

Gary Martin, Analyst

That's really helpful. What can you tell us about future internal and external development opportunities following the disposal? You mentioned internal projects within Dole before, but any incremental color on what you're looking at? Also, I recall you mentioned seeing additional investment opportunities across fresh produce in Diversified EMEA. Any further details?

Rory Patrick Byrne, CEO

We look at lots of acquisition opportunities we see. We've had quite a lot of approaches, particularly from the private equity sector looking for exits. There's a valuation gap for interesting companies compared to the public market valuation. It’s taken longer than I would have liked for our share price to move up a bit to narrow that gap. We will only do acquisitions if they provide added value to our shareholder base. With the veggie deal out of the way, we have a clear strategic path and are studying several interesting projects in Scandinavia, and looking at add-on projects in Chile, Peru, and developing in France. We're always looking at add-ons to support and enhance our core organic growth.

Gary Martin, Analyst

Perfect. Just pivoting toward trading, it's challenging to distinguish how much has been passed through at the moment, but could you provide any color on perceived elasticity to date?

Rory Patrick Byrne, CEO

Most of our products show that bananas are cheap on a per kilo or per ton basis relative to other fruit. We believe there's scope if prices need to move due to tariffs or short sourcing or complex sourcing issues or foreign exchange fluctuations. The price could go up by a reasonable percentage, and we believe it will have no negative impact on consumption.

Gary Martin, Analyst

That's really helpful. One final question, regarding Diversified Fresh Produce Americas and Rest of World. There was a strong like-for-like performance, but a particularly robust adjusted EBITDA performance. The difference there is almost 20% in terms of performance. Can you provide insight into that 27% increase in adjusted EBITDA in that division? Was it a mix benefit? What's the best way to think about it?

Rory Patrick Byrne, CEO

Most of the individual underlying businesses within that division performed very well. Our South American business has managed tremendously how we closed our cherry season, our grape season, and it has done well on apples, kiwis, and avocados. Our import activity was a bit weaker, and we're working on improving that going forward. It’s a period where strong management focus on all aspects of the business has brought through good results.

Gary Martin, Analyst

Very helpful. One final question regarding the CapEx guide. I've seen that you held maintenance at $100 million, but any updates on the required additional CapEx after the developments in Honduras versus where we were in Q1?

Rory Patrick Byrne, CEO

No material change, Gary, in the Q1 outlook on that.

Operator, Operator

I'd like to hand the call back to Rory Byrne for final remarks.

Rory Patrick Byrne, CEO

Thank you. We're very pleased with the second quarter and the full first half of the year. I think it's a great outcome against the backdrop of a very complex macroeconomic environment. We've pushed up the dividend to 6.5%. We've increased our guidance slightly and made significant strategic progress with a good outcome for the Vegetable business. Thank you, and we believe we're well positioned for continuing further growth.

Operator, Operator

Thank you for attending today's call. You may now disconnect. Goodbye.