Earnings Call Transcript - DOLE Q3 2025

Operator, Operator

Welcome to Dole Plc's Third Quarter 2025 Results 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, Derek. Welcome, everybody, and thank you for taking the time to join our third quarter 2025 results webcast. Joining me today is our Chief Executive Officer, Rory Byrne, our Chief Operating Officer, Johan Linden; and our Chief Financial Officer, Jacinta Devine. During this webcast, we will be referring to presentation slides and supplemental 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 law. These 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 am pleased to turn today's call over to Rory.

Rory Byrne, CEO

Thank you, James, and welcome, everybody. Thank you all for joining us today as we discuss our results for the third quarter of 2025 and provide an update on our latest developments. So turning firstly to the highlights on Slide 4. We are very pleased to report another good result for the third quarter, in line with market expectations. Our two diversified fresh produce segments have delivered excellent results, offsetting the anticipated short-term headwinds in our Fresh Foods segment and demonstrating the strength of our diversified and resilient business model. As discussed on our last earnings call, we completed the sale of our noncore Fresh Vegetable division in early August. This was a key strategic priority for us, and it created greater flexibility in our capital allocation strategy. As part of the evolution of this capital allocation strategy, today, we also announced our Board of Directors' approval of a $100 million share repurchase program, which will be used opportunistically. We continue to see attractive opportunities to deploy capital, supporting our strategic growth, and adding the buyback program provides flexibility to repurchase shares as the share price represents an attractive opportunity to enhance shareholder value. Turning now to the operational review and starting with Fresh Fruit on Slide 6. Firstly, I’m very pleased to update you all on an exciting new milestone for the Fresh Fruit business, the launch of our new Dole Colada Royale pineapple. Bringing this product to market is the culmination of 15 years of dedication to research and development at our own research facilities and farms in Honduras. The Colada Royale is our first new pineapple variety in many years, developed through conventional non-GMO breeding to deliver a distinctive and new flavor and appearance for the tropical category. While volumes remain low for now, the Colada Royale is already selling at a material premium, delivering high margins on a per box basis, while also stimulating excitement for the category. The launch also provides us with a competitive edge for a wider tropical portfolio, and we continue to invest in complementary products, including plantains, limes, and mangos. Importantly, the launch also reinforces our commitment to community and purpose, with a portion of every box sold supporting the creation of a new community center with farm workers and families in our Honduran pineapple region, delivering health care, training, and language services. So looking now more closely at the performance in quarter 3. As anticipated, our result was lower than the prior year, driven primarily by higher sourcing costs, particularly for bananas. As we have noted over the course of the year, our own sourcing costs in 2025 were always anticipated to be higher due to the impact of Tropical Storm Sara had on our important Honduras sourcing region late last year. However, as 2025 has progressed, we have been impacted by growing conditions for the industry in Latin America as it reduced yields and higher spot prices have increased procurement costs. Looking out to 2026, we are progressing well with the rehabilitation of our impacted farms in Honduras as well as actively making additional investments to enhance our supply across our portfolio. Positively, demand for bananas continues to be robust in both our key North American and European markets. And while this heightened demand is contributing to the tight supply and cost pressures we saw in Q3, there's also clearly a really good sign for the health of the category overall. Moving on then to diversified EMEA on Slide 7. The positive momentum seen in the first half of the year continued in the third quarter, with the segment delivering significant adjusted EBITDA growth on both the reported and like-for-like basis. We continue to see strong underlying growth in markets that have performed well all year, such as Spain, and we had good growth in our Dutch business. In the Nordics, the benefits of the increased investments in our distribution and logistics capabilities have driven both revenue growth and some margin expansion. Looking ahead, while we do not anticipate the same rate of growth seen in Q3 to continue in Q4, it is clear that the diversified EMEA segment overall is performing in a healthy way, benefiting from the ever-advancing integration of our operations. Turning now to our Diversified Americas segment on Slide 8. While the third quarter is typically the least active quarter in Diversified Americas due to the timing of key Southern Hemisphere export seasons, this segment delivered a very positive result with a strong performance, both on the export side and continued good performance in our North American market. As part of the continued streamlining of our operations, at the beginning of the fourth quarter, we announced the integration of Dole Diversified North America into Oppy, our largest diversified fruit distribution sales operation in the North American market. Looking forward, we believe our businesses in this segment are well placed to deliver a good end to the year. And with that, I'll hand over to Jacinta to give the financial review for the third quarter.

Jacinta Devine, CFO

Thank you, Rory, and thank you all for joining our webcast. Turning firstly to the financial highlights on Slide 10. Overall, the results for the third quarter were ahead of our own expectations. Revenue of $2.3 billion was 10.5% higher on a reported basis and 8% higher on a like-for-like basis, reflecting the continued good underlying growth across each of our segments. Net income was lower due to a loss of $10 million in discontinued operations, driven by a loss on the disposal of the Fresh Vegetable business. There was also an associated non-cash fair value charge of $8 million on fixed assets excluded from the sale. These decreases were partially offset by $10 million insurance proceeds recognized in the period, increases related to fair value adjustments of financial instruments, and higher earnings in equity method investments. Now looking at the non-GAAP performance measures. Adjusted EBITDA decreased by $1.3 million. The decrease was primarily due to decreases in fresh fruit, partially offset by strong performances in both diversified segments. Adjusted net income decreased by $3 million predominantly due to the decrease in adjusted EBITDA as well as higher depreciation expense, partially offset by lower tax expense. Adjusted diluted EPS was $0.16 compared to $0.19 in the prior year. Turning now to the divisional updates, starting with Fresh Fruit on Slide 12. Revenue increased by 11% primarily due to higher volumes and pricing of bananas, pineapples, and plantains on a worldwide basis. As anticipated, higher sourcing costs for bananas were the major driver in the decrease in adjusted EBITDA in this quarter. In the quarter, we also experienced higher food sourcing costs in pineapples and plantains, as well as lower profits in commercial cargo. Now turning to Diversified EMEA, who delivered another excellent result in the third quarter, continuing the strong performance seen over the course of this year. Reported revenue increased by 11%, primarily due to strong underlying performance in Scandinavia, Spain, and the Netherlands, as well as a $57 million favorable impact from FX, partially offset by a net negative impact from M&A of $9 million. Excluding these impacts, on a like-for-like basis, revenue increased by 6% or $50 million. Adjusted EBITDA increased by $10 million or 34%, driven by higher earnings in Scandinavia, Spain, the Netherlands, and South Africa, as well as a favorable impact from FX translation. On a like-for-like basis, adjusted EBITDA increased by 24% or $7 million. Diversified Americas also had a very strong third quarter, with revenue increasing by 8% or $30 million. Driving this increase was revenue growth in most commodities sold in the North American market, particularly in kiwis and berries. Adjusted EBITDA increased by $4 million or 46%, driven by a strong performance in the Southern Hemisphere export business, primarily due to positive final liquidations of the prior export season, as well as continued good performance in the North American market. And now turning to cash flow and capital allocation. Cash capital expenditure was $20.9 million in the quarter and an additional $0.7 million of assets were acquired under finance leases. The combined total included expenditure on Honduras farms rehabilitation projects which were covered by insurance proceeds, along with logistics and warehouse investments in EMEA and ongoing reinvestments in other farming and transportation infrastructure. As we get close to year-end, we are reducing our full year expectation for routine capital expenditure to approximately $85 million, with the reduction mainly due to the timing of the execution of certain projects. This routine capital expenditure excludes the rehabilitation costs of our farms in Honduras, which we estimate to be approximately $25 million, which will be covered by insurance proceeds. In line with our typical seasonal working capital trend, we started to see the unwind of the material working capital build from the first half, albeit somewhat curtailed this year by the strong volume and revenue growth being seen across the business. The combination of these factors resulted in free cash flow from continuing operations of $66.5 million for the quarter. In keeping with previous years, we do expect that the unwind in working capital will significantly increase as we head towards the end of the year. As discussed previously, we disposed of our Fresh Vegetable business at the beginning of August, and this resulted in an inflow of $68 million and was an important contributor to the reduction in net debt to $664 million by quarter-end. We are pleased to declare an $0.085 dividend for the third quarter, which will be paid on January 6 to shareholders of record on December 9. Now I will hand you back to Rory, who will give an update on our full year outlook and provide further detail on our go-forward capital allocation strategy.

Rory Byrne, CEO

Thank you, Jacinta. Well, 2025 is proving to be a very dynamic year, and we're very pleased that our broadly based business model has delivered year-on-year adjusted EBITDA growth for the first 9 months. As we approach the latter part of the financial year, macroeconomic volatility continues, and some industry-specific factors may influence our results, including the current supply and demand conditions for bananas. However, the momentum within the overall business gives us confidence that our full year adjusted EBITDA should be at the upper end of our targeted range of $380 million to $390 million. In summary, our sector and indeed, our position within the sector gives us ample opportunity to grow and generate strong returns for shareholders. The announcement today of the $100 million buyback program provides another lever for driving long-term sustainable shareholder value. Our presentation slide includes further detail on our overall capital allocation framework. I want to conclude by once again thanking all our outstanding people right across the group for their ongoing commitment and dedication to driving Dole Plc forward. In particular, this quarter, I want to give special mention to our pineapple team, both on the research and production side in Latin America, and also our sales and marketing teams in North America who have delivered on our long-term vision to bring a new and innovative product to the market with Dole's Colada Royale. As always, we really appreciate all our essential partners, suppliers, customers, and all our other stakeholders for their continued support. And with that, I'll hand you back to the operator to open the line for questions.

Operator, Operator

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

Christopher Barnes, Analyst

I guess I'd just like to start on the implied outlook for the fourth quarter, and I appreciate that forecasting in this environment is an imperfect exercise to say the least. But could you just elaborate on the key drivers of the implied 10% decline at the upper end of the annual EBITDA guidance? It just seems that cost versus pricing mismatches in Fresh Fruit and mainly bananas are the biggest contributor, especially given the volume momentum you've enjoyed year-to-date. So I'd just love more color around the fourth quarter? And then just thinking about 2026, like should we expect that these cost pressures continue into 2026? Or is the annual contracting progressing in your favor on pricing? Or is there some other offset, whether through your sourcing, easier compares from less tight industry supply? Like just love perspective on the fourth quarter and then into 2026.

Rory Byrne, CEO

Thanks, Chris, for the question. Obviously, as you say, guidance in this quite volatile macroeconomic environment becomes increasingly challenging. Another factor, and we've highlighted it previously, but perhaps not in the current quarter, you can't forget that we really had an excellent 2024. So it's at an incredibly high benchmark for us going into '25. We highlight some of the specific headwinds that we had ourselves in Honduras. Yes, there has been some exacerbation of those with industry-wide problems. We've seen problems in Panama. We've seen problems in Costa Rica. That has had quite a significant impact on the spot price and coming out of Ecuador, and that's impacted on our procurement costs when we've had to reorganize some of our procurement. So we definitely see some of those headwinds continuing into Q4, which is probably a factor in arriving at the guidance. But we're still comfortable that the overall guidance is a pretty good number as a benchmark against the '24 outcome. Looking out to '26, it's definitely a little bit early to start to give any more comprehensive guidance for '26, and we're working through the process of our budget process and indeed contract negotiations. However, based on long experience within the industry, if supply conditions tend to continue for a sustained period of time, we usually see that the market adjusts in all aspects to that supply/demand equation. So no particular reason to be unduly concerned about '26, but very early to give any predictions. I hope, Chris, that gives you an overview of where we're at on guidance.

Christopher Barnes, Analyst

Yes. That was very helpful. And then just a quick follow-up on the topic of tariffs into the U.S. I know it's different each time we speak, but we have seen some evidence of select exclusions for certain agricultural products in the last couple of months. So with that in mind, is there anything new to share from your and the broader produce industry's efforts to secure exclusions for tropical produce that you can't grow commercially in the U.S.?

Rory Byrne, CEO

No, we have nothing new to share on that, Chris. I mean, certainly the principle that products that cannot be commercially grown within the U.S. should be excluded from the tariff scenario is clearly established by the U.S. administration. I think it's just taking a little bit of time to convert that principle into practical reality. There's a lot of moving parts, particularly at this moment in time around the whole tariff equation. Over time, our industry is a good example of international trade. The U.S. wants people to have access to healthy products year-round, particularly tropical products such as bananas and pineapple. While it might take a little time to change, we're confident that over a sensible period, there should be positive changes. However, there's no specific news just at the moment to update you on that front.

Operator, Operator

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

Gary Martin, Analyst

Can you hear me now?

Rory Byrne, CEO

Got you now.

Gary Martin, Analyst

Perfect. Once again, congrats on a strong set of results. Just a few quick ones for me. I think maybe the most pressing one would be just around the capital allocation. Obviously, a big announcement there around the authorization of a $100 million aggregate buyback. It would be good to get your thoughts on your thinking behind the buyback program and how that plays into the rest of your capital allocation policy? And maybe just as an add-on, how you view leverage going forward?

Rory Byrne, CEO

Thanks, Gary. We've stated for a long time that we had a significant strategic overhang in terms of the potential future outcome on our discontinued operation, the Vegetable division, that we previously had. We were very happy with the outcome of that. It gave us clarity around the focus on our three main operating divisions, and it did allow us to be more definitive about our capital allocation strategy. We wanted to have, if you like, the tool in our toolkit in terms of having the buyback capacity available. We believe there are plenty of opportunities, whether it's small or larger opportunities to grow within our individual divisions. We're not going to ignore those opportunities, whether they be capital development projects or small bolt-on acquisitions, in particular. Certainly, some of the bigger acquisitions and the valuation multiples are still probably a little too high, so we'll be patient on that front. In general terms, having a progressive dividend policy combined with the buyback program and plenty of capital investment opportunities, I think we're now well positioned in terms of having set up our capital allocation strategy in a good and clear way for the investment community.

Gary Martin, Analyst

That makes sense. And maybe just to dive in a tiny bit deeper into just one component there. Just trying to join it with your current set of results. You've talked about investing to date. I think one area mentioned in your prepared remarks was investment in the Nordic region and diversified EMEA, and that seems to be paying dividends. Are there any other areas that you'd flag in that particular ballpark? And I suppose when I think about the Nordics and the number of strong quarters in a row for the diversified segments, how sticky is some of that upside to these investments in the long term?

Rory Byrne, CEO

We have plenty of investments underway. If we undertake them, we try to make them as sticky as possible. We've done several smaller investments in our distribution capability, even in terms of non-fresh fruit products, and they're coming through in a very, very positive way. We're constantly exploring further automation of our significant facilities and our interactions with some of our key customers in that region. Looking at different divisions, particularly in Fresh Fruit, we've highlighted things like plantains or limes where we have been expanding our presence and control. We're probably doing a little more in the organic space to ensure we have the right mix between third-party and controlled production. There’s a bit of rebalancing in terms of our sourcing capabilities across different geographies in Latin America and South America for Fresh Fruit as well. For the Diversified Americas business, we're expanding our handling capabilities, particularly for products like cherries. We're broadening our core base there and interacting with some key partner producers. There are also smaller investments around the group, such as upgrading our facilities in Ireland, enhancing our avocado ripening capacity in Spain, and developing our banana ripening capabilities in Sète, France. So lots of projects and development opportunities. I hope that covers the question you had, Gary?

Gary Martin, Analyst

Very thoroughly. I may just have one final one, trying to be more technical. But maybe just one for Jacinta. Even just around the reduction in routine CapEx, you may have glossed over in your prepared remarks, but it would be good to dive into the nature of the reduction in routine CapEx and whether you expect that to be around the $85 million level on a go-forward basis?

Jacinta Devine, CFO

Gary, yes, the reduction is just really timing. As we're now in almost the middle of November, we can see that our ability to complete some of the projects that we had targeted will likely be unfulfilled before the end of the year. That's really why we've lowered that. We would expect those projects to be completed in 2026. In terms of go-forward, typically, we've always said that we'd like to run our normal routine CapEx in line with our depreciation, which is just over $100 million. So that's the long-term number. There can be opportunities outside of that, but in normal terms around, in line with our depreciation, which is about $100 million.

Operator, Operator

Your next question comes from the line of Pooran Sharma with Stephens.

Pooran Sharma, Analyst

Can you hear me now?

Rory Byrne, CEO

Yes.

Pooran Sharma, Analyst

I appreciate the question here. I just wanted to maybe get a sense of how your negotiations with your customers have been going so far in the annual contracting season? I know you said it was too early, but you mentioned in past years, if tight supply conditions persist, the industry generally tends to adjust itself. I was just wondering if you could give us a bit more qualitative insight regarding how some of your negotiations with your customers have been faring so far this season?

Rory Byrne, CEO

Yes, it's a delicate moment, and we're in the middle of the process, so we don't provide too much information. Johan, could you offer just a little high-level insight on that to add to Pooran's question?

Johan Linden, COO

Yes. I wish I could say exactly what Rory just mentioned, that it's too early, and we are right in the middle of it. But considering the supply situation, we believe it's well understood within the markets since it's impacting everyone with Panama being shut down, which took out a sizable volume, Honduras experiencing the weather challenges last year took out a sizable volume, and now Costa Rica is also affected by weather. Customers are aware of the situation, and we feel that the discussions and negotiations with retailers are always tough, but we believe we're managing to communicate our story effectively. So we feel optimistic about the future.

Pooran Sharma, Analyst

Okay, great. I appreciate the clarity there. I was just wondering if you could talk more about the strength you're seeing in diversified fresh produce, focusing on EMEA. I know you gave some color with the last questions. You've made solid investments, but in terms of the underlying drivers, consumer health, and those areas, could you share a bit more about the performance you've seen thus far?

Rory Byrne, CEO

On an overall basis, you need to recognize the strength of our business in the diversified segment. In EMEA, if you look across the European countries, we're the #1 player in Ireland, in the U.K., in Spain, Czech Republic, Sweden, Denmark, and a strong presence in Germany, the Netherlands, France, and Italy. We have a well-oiled machine in Europe and a robust platform to build with our existing customer base across all segments from retail to wholesale to food service. The consolidation of the strengths of Dole Food Company and total projects has yielded benefits visible in a more comprehensive package for the major customers across the different markets. We've been working hard to consolidate our activities, particularly in Holland and Northern Europe, and we've been developing in France. We have a very strong platform in Spain; for example, we opened our avocado ripening facilities this year. We're dual branding a range of exotic products and seeing a lot of positive traction with our customers. In Scandinavia, we've had a strong position historically and are building on that with core activities while expanding into additional interesting aspects. In North America, the fresh diversified business has a strong platform with our Oppy business as a base for marketing. Our other businesses, whether it's Gambles in Toronto or our fresh connection export business, have been working hard. Following difficulties due to the pandemic and supply chain disruptions, we've regrouped positively, and now we have a strong platform to build upon, including expansion activity in Chile and Peru. So overall, the integration of Dole Direct North American business into Oppy is a significant step towards making our businesses more efficient and appealing to key customers. I hope that provides a high-level overview.

Johan Linden, COO

To add on, we also see very healthy consumer demand. Consumers are focusing on affordability and health, and they are choosing the channels where our products are represented. We seem to be in a good position right now.

Operator, Operator

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

Peter Galbo, Analyst

Can you hear me okay?

Rory Byrne, CEO

We got you.

Peter Galbo, Analyst

Great. Thank you for the questions. Maybe just to return to Chris Barnes' question regarding tariffs and to ask it in a slightly different way. What was embedded in the guidance this year, the $380 million to $390 million, in terms of overall tariff hit? If we do get relief or the Supreme Court tosses out IEEPA tariffs, what's the potential flow-through of what was embedded in this year's guidance?

Rory Byrne, CEO

We didn't build in any particular positive or negative into the guidance for this year. We've been working our way through it very carefully with our customer and supply base. It's clear that if the tariffs were unwound, that would just be a pass-through in some way; we wouldn't get any particular benefit nor suffer any particular negative. The key point really, as Chris' question indicated, is the long-term issues; certainly, our industry is not the specific target of tariffs. We hope the tariff approach will align over time.

Peter Galbo, Analyst

Got it. Helpful. I know it was a relatively short-term hiccup in Q4, but I wanted to ask about SNAP and whether you observed any real implications or issues even in the first 10 days of this month, particularly regarding fresh fruits and vegetables, which likely have some SNAP exposure. Just whatever you saw, and again, if we get resolution today, it could be a nice tailwind, but kind of what you saw in the very short term.

Rory Byrne, CEO

Johan, do you want to comment on that in terms of the government shutdown impacts as well?

Johan Linden, COO

Yes. We have not seen any trends from the shutdowns. We only have anecdotal stories coming back from the market. And what people are saying is that in areas with many government employees, they've seen a slight decrease in sales in stores, perhaps moving more to affordable products. We offer many affordable products, especially bananas. Anecdotally, people say that some consumers in these areas are gravitating towards what is perceived to be less expensive formats like discount stores. We are represented across all channels, so we feel we are in a good position. However, there are no tangible trends, only market anecdotes.

Operator, Operator

There are no further questions at this time. I will now turn the call back to Rory Byrne for closing remarks.

Rory Byrne, CEO

Thank you, Derek. We're very pleased that our broadly based business model has again performed well in the quarter. We've made good operational and strategic progress over the course of '25. Having sold the Fresh Vegetable business cleared our path and provided more strategic focus on our three key operating divisions. Moreover, the financial flexibility to implement the $100 million buyback program adds to our toolkit for enhancing shareholder value. Overall, we believe we are well positioned to continue to succeed over the next few years. Thank you very much for joining us today.

Operator, Operator

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