Earnings Call Transcript - DOLE Q4 2023

Operator, Operator

Hello, everyone. Welcome to the Dole plc Fourth Quarter and Full Year 2023 Earnings Conference Call and Webcast. Today's conference is being broadcast live over the internet and is also being recorded for playback purposes. Currently, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. For opening remarks and introductions, I would like to turn the call over to 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 fourth quarter and full year 2023 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 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 the reconciliation to the most comparable GAAP measures. With that, I'm pleased to turn today's call over to Rory.

Rory Byrne, CEO

Thank you, James. Welcome everyone, and thank you for joining us today as we discuss our results from the fourth quarter and the full year of 2023. Let's start with a recap of the key developments in 2023. This year marked significant progress and positive momentum for Dole plc as we solidified our position as the leading provider of fresh produce globally. We introduced several new initiatives and innovations to advance our business. We launched Dole Organics and the Go Organic brand in Europe, which has been well received by our customers. Dole Organics complements our existing organic banana and pineapple offerings across Europe and North America. Additionally, we debuted our premium Golden Selection Pineapple during 2023, which has garnered positive reviews from our customers and sets a strong foundation for future innovations in this category. We are also making solid progress in consolidating our third-party shipping volumes and managing this vital aspect of our operations efficiently. With interest rates remaining high, we are focused on reducing our leverage. In 2023, we realized considerable value from the sale of noncore assets, such as nonoperational lands in Hawaii and out-of-service vessels, totaling about $84 million in cash proceeds from these nonproductive assets, which translates to nearly $1 a share in crystallized cash value. This, along with our robust free cash flow generation, helped decrease our net leverage from 2.8x to 2.1x by year-end. Earlier this week, we announced an agreement to sell our 65% stake in Progressive Produce for gross cash proceeds of just under $120 million, with net proceeds expected to be around $100 million. The Progressive business was a distinct part of our diversified Americas and Rest of the World segment, leading to a successful exit and attractive valuation from our initial $30 million investment back in 2016. We plan to utilize the proceeds from this sale to further reduce our leverage. Now, moving on to our financial highlights for 2023. We are pleased to report strong full-year results, achieving an adjusted EBITDA of $385 million, exceeding our initial guidance of $350 million by 10%. Group revenue for the full year increased by 2.8%, mainly driven by higher pricing. Adjusted EBITDA rose by 6.9%, resulting in an adjusted EBITDA margin of 4.7%, up from 4.5% in 2022. This growth was propelled by strong performance in our Diversified Fresh Produce EMEA segment and consistent results in both our Fresh Fruit and Diversified Fruit Americas segments. Adjusted diluted EPS was $1.24 for the full year compared to $1.44 in the previous year, with the decrease mainly attributed to higher interest expenses. Efficient capital management and allocation remain key priorities for us. We are pleased with our strong cash generation, which led to over $200 million reduction in net debt by the end of 2023. This success stems from a combination of good operating performance, disciplined capital investment strategies, and effective working capital management, along with a strong year for the sale of noncore assets. Now moving to our operational highlights, starting with our Fresh Fruit division. This segment delivered a solid performance for the full year, with adjusted EBITDA increasing to $209 million, approximately 2% ahead of 2022. In the fourth quarter, the segment faced a challenging comparative from 2022, but we were pleased with our results nonetheless. During 2023, a crucial growth driver was the recovery in our European business following a tough 2022, coupled with good profitability in our pineapple business, buoyed by an improving supply-demand balance in the key Costa Rican growing region and the success of our Golden Selection Pineapple in the marketplace. In North America, our operations continue to perform well, although they encountered challenges due to heightened competition and lower commercial cargo profitability throughout the year. We also faced higher sourcing costs because of low production volumes in many regions and currency pressures. As always, the supply and demand dynamics in the banana market, and to a lesser degree in the pineapple market, remain important factors to monitor for the upcoming year. Weather conditions also play a significant role in supply, especially under the influence of El Niño, which we are increasingly observing in the current banana production cycles. We anticipate that industry volume will remain low in 2024; however, we are confident in our preparedness. Our experienced management team is focused on risk management, improving operational efficiencies, and delivering top products, all of which will contribute to sustainable growth and profitability. We believe that our approach, combined with leveraging our established and diverse sourcing infrastructure and customer base, will enable us to deliver another strong and consistent performance in 2024. Now, let’s look at the Diversified EMEA division. Our Diversified EMEA segment concluded 2023 strongly, rounding out an excellent performance for the year. The segment saw significant like-for-like growth in both the quarter and the full year, benefiting from improved currency rates. Revenue growth continued to be driven by higher pricing, offsetting volume declines across the segment. We are making daily progress in driving synergies within the EMEA segment while actively pursuing internal investments and bolt-on acquisition opportunities to support further expansion in the European market. Overall, we expect our Diversified EMEA segment to continue performing well in 2024 as we leverage our strong market positions, operational integration, and investment opportunities. Moving on to the Diversified Americas segment, it delivered consistent results in the fourth quarter, contributing to a solid full year performance despite facing particular challenges. Improved supply chain conditions for our South American export business led to better operating results in this segment in 2023, while robust performance in most of our North American operations also added to our overall success. However, the segment faced challenges in our North American berry business, where efforts are ongoing to enhance profitability. Weather patterns in the fourth quarter significantly affected the timing and volumes of products exported from South America. While we are pleased with how our businesses are navigating these challenges, the year’s variability highlights the complexities in reporting full-year figures in key business areas with seasonal peaks close to financial reporting dates, such as the Chilean cherry business. As we enter 2024, we are focused on concluding the current South American export seasons for key products with strong performance, momentum that we aim to carry throughout the year for continued growth. Lastly, regarding our Fresh Vegetable segment, the process of obtaining antitrust clearance is taking longer than expected. We continue to engage with the Department of Justice, including exploring alternative agreements to address concerns raised. While we firmly believe that the agreement reached with Fresh Express is in the best interests of consumers, customers, suppliers, employees, and shareholders, the outcome remains uncertain. Operations in this segment have seen improvements in underlying performance. Now, I will hand it over to Jacinta for the financial review of the fourth quarter.

Jacinta Devine, CFO

Thank you, Rory, and good day, everyone. Firstly, turning to the group results on slide 9, we delivered another strong performance in the fourth quarter. Revenue increased $30 million or 1.5% to $2.1 billion, primarily due to a positive impact on foreign currency translation. For the full year, revenue was $8.2 billion, which was 2.8% growth on 2022. Adjusted EBITDA came out marginally lower than the prior year; however, as mentioned by Rory, the Fresh Fruit segment performance in Q4 2022 was exceptionally strong. Overall, adjusted EBITDA was $76.9 million for the fourth quarter. And for the full year, it was $385.1 million, 6.9% ahead of 2022. The net income for the fourth quarter was $28.9 million and increased from $13.4 million in Q4 2022. The increase in net income was driven by higher adjusted EBITDA and, again, on asset sales of $10.7 million. For the full year, net income was $155.7 million, a $43.9 million increase from the prior year primarily due to an improvement of performance from operation and higher asset sales, partially offset by higher interest expense following the rise in rates and higher income tax expense, primarily due to one-off noncash tax adjustments in 2022. Diluted EPS was $0.23 in the fourth quarter, and for the full year, it was $1.30, again, an increase from 2022. On an adjusted basis, fourth quarter adjusted net income decreased 14% to $14.8 million. An adjusted diluted EPS was $0.16 compared to $0.18 in the fourth quarter of 2022. The decrease was primarily due to the marginal decrease in adjusted EBITDA and higher interest expense. For the full year, adjusted net income was $118.1 million, and adjusted diluted EPS was $1.24 compared to $136.4 million and $1.44 respectively for 2022. The decrease was mainly due to the higher interest and tax expense offset by higher EBITDA. In the fourth quarter, underlying performance within the Fresh Vegetable business continued to improve and pleasingly, the division contributed income of $5.8 million. Starting with Fresh Fruit on slide 11, revenue increased by 1.2%. The increase was primarily due to higher worldwide volume of bananas sold, higher banana pricing in Europe, and an increase in worldwide pricing of pineapples. Offsetting these were lower banana prices in North America and lower worldwide volumes of pineapples sold. The adjusted EBITDA decreased $11 million compared to a strong comparative period. The decrease was primarily due to higher fruit banana sourcing costs and weaker performance in our commercial cargo business and other diversified products. Turning to Diversified Fresh Produce, EMEA on slide 12, continuing the positive momentum for the first nine months of the year, this segment again performed very strongly in the fourth quarter. Revenue increased 14.8%, driven by price increases and favorable impacts from foreign currency translation and M&A activity. On a like-for-like basis, revenue increased 8.7%. Adjusted EBITDA increased by $10 million. The increase was driven by strong performance within our Dutch, Swedish, and South African businesses and a positive impact from foreign currency translation of $1.1 million. Finally, turning to Diversified Fresh Produce, Americas and Rest of the World on slide 13, revenue decreased 14.7%, primarily due to expected lower volumes of cherries due to seasonal timing differences and weather impacts, as well as continued challenging performance for the berry category in North America. Adjusted EBITDA was $15.4 million in line with the prior year. The division had a significant recovery in profitability for apples and, to a lesser extent, kiwis after a challenging 2022. Offsetting this was the impact of seasonal timing differences in the Chilean cherry season and the impact of the performance of the berry category in North America. Turning to slide 14 now to discuss our cash generation, capital allocation, and leverage. As Rory mentioned, capital allocation and managing our leverage remains a key focus for the group. We are pleased that at the end of the year, our leverage was 2.1x, a very significant reduction from 2.8x at the end of 2022. The reduction was driven by excellent cash generation across the group, which has reduced our reported net debt by over $200 million. For the full year 2023, free cash flow from continuing operations was $221 million, driven by strong adjusted EBITDA performance and good working capital management across the group. We saw a very strong working capital performance in Q4 and in 2023 overall, primarily driven by the unwinding of some of the significant supply chain impacts of the prior year, but additionally due to favorable seasonality at the year-end. In line with previous years, we expect to see a seasonal working capital outflow in the first half of the year as production levels increase and a number of important growing seasons commence. Cash capital expenditure from continuing operations was $26.7 million in the fourth quarter, and this was complemented by the addition of $5.3 million in assets acquired through finance leases. Full year expenditures included important efficiency projects in our warehousing and processing facilities, as well as ongoing farm renovations in banana farms, new planting and plantains, and other products and ongoing investments in IT and logistics across the group. Overall, capital spend was $87 million in 2023. For 2024, we do anticipate a higher spend as we seek to execute certain projects that were planned for 2023. We expect CapEx from continuing operations to be in the range of $110 million to $120 million in 2024. As we have previously noted, 2023 was a very strong performance for the sale of idle and noncore assets, and we realized gross proceeds of $19 million in the fourth quarter to bring us to a total of $84 million for the full year. At the end of the year, the combined value of our asset held per sale and actively marketed property was $16 million, and we continue to seek further asset sales in 2024. Interest expense, including discontinued operations for the fourth quarter, was $20 million, slightly higher than the prior year. For the full year, interest expense increased $26 million to $87 million. Under an assumption that base rates will remain broadly stable in 2024 and not assuming any cash impacts of the vegetables or progressive produce sales, we expect full-year interest expense for 2024 to be circa $85 million. Continuing with our commitment to return cash to shareholders, we are pleased to declare a dividend of $0.08 for the fourth quarter, which will be paid on April 4th to shareholders on record on March 21st. Now I will hand you back to Rory, who will give an update on our full year outlook and closing remarks.

Rory Byrne, CEO

Thank you, Jacinta. Well, we're very pleased with the group's exceptional performance in 2023, delivering $385 million of adjusted EBITDA from continuing operations, and the result that we believe gives us a strong platform from which to build further momentum in the 2024 financial year. As ever, the operating environment continues to present new challenges and, indeed, new opportunities. On the macro side, we are pleased that inflation has continued to moderate across our key operating regions. We're also pleased by the relative stability in some key foreign exchange rates, as well as some stability in energy prices, and more recently stability in interest rates. By forecasting both complex, overall we believe our business is well positioned to deliver another good result in 2024. Given our strong 2023 over-performance, our target at this early stage of the year is to enable full-year adjusted EBITDA in line with 2023 on a like-for-like basis. In 2024, we're focusing on the following key strategic priorities: accelerating growth in our core business areas and categories, investing for growth while obviously maintaining a disciplined approach to capital, exiting the fresh vegetable business, focusing on cost control and operating efficiencies across the businesses, and advancing our sustainability goals. In conclusion, I'm very pleased with the excellent results we've delivered in 2023, and we expect to continue the momentum into 2024, as we also advance our strategic priorities in the year ahead. I want to finish by once again thanking all our excellent people across the group for their ongoing huge commitment and dedication to drive Dole plc forward, as well as our suppliers and customers for their ongoing support, which provides us with great confidence as we begin the 2024 financial year. And with that, I'll hand it back to the operator, and we can open the line for questions.

Operator, Operator

Our first question comes from Ben Bienvenu from Stephens Incorporated.

Ben Bienvenu, Analyst

Thanks. Good morning. So I want to ask, Rory, as it relates to the 2024 guidance and expectation of roughly $385 million of EBITDA, can you talk us through the puts and takes that get you to that level, the good, the bad, and how much variability you see embedded in that assumption, and then does that guidance take into consideration the sale of Progressive Produce?

Rory Byrne, CEO

Yes, let’s do the last point first, Ben. What we've said is the guidance is on a like-for-like basis. So I think closing of the Progressive deal would give you more clarity on the guidance, adjusted for the disposal when it actually happens. So it's on a like-for-like basis. I mean the forecasting, I suppose, just generally has become more challenging with the variability and volatility of just in the world in general terms. The world is emerging, hopefully emerging at least from some of the very high-level inflation that we've seen over the last few years. And I think the markets are taking time to adjust about changing environments. So it's a little more complex. It's very early in the year. I think during the verbal update on the results that I've just given highlights that we're feeling comfortable in our three main categories. There will be ups and downs, but we're not anticipating any major shifts really. And we just, I guess, when you look back at it, we probably doubled our expected growth in 2023. So if we can consolidate our 2024 number at that level, it gives us a really, really strong platform to continue to grow in future years.

Ben Bienvenu, Analyst

Okay, fair enough. My second question is related to the portfolio. You noted the desire to continue to divest noncore assets. Do you also have a desire to pursue M&A opportunistically? Where do you see the balance of your portfolio sitting at this point?

Rory Byrne, CEO

Yes, I mean, I think that's it's, actually it’s a dynamic scenario in which one of the reasons probably that we're disposed of Progressive is something that I've alluded to before. And this call is that the private market valuations are quite a bit higher than the public market valuation. So an element of that was taking advantage of that scenario. And hopefully, the public market valuations change over time. So that dynamic changes around. But we're constantly, we have our own internal corporate finance department and all of our key management team are very focused on their individual segments and the operations that the good companies participating in those segments and the opportunities that they present. So we've got an open mind. Obviously, it's going to be subject to getting any deal for our acquisitions that we might look at down on terms of genuinely add value to our shareholder base. And that has always been the principle and will continue to be the principle.

Operator, Operator

Our next question comes from Adam Samuelson from Goldman Sachs.

Adam Samuelson, Analyst

Yes, thank you. Good morning, everyone. I guess the first question, Rory, I mean, you talked about a variety of different puts and takes and volatility. As you think about 2024, maybe hoping to narrow in a little bit more on the Fresh Fruit business and bananas and pineapples and how you see the supply and demand environment progressing? How contractual renegotiation with retail customers went for calendar ‘24 and kind of where you see the kind of upside downside risks to that business in particular for the year.

Rory Byrne, CEO

Maybe Johan can provide a high-level overview to kick things off, and I’ll add some more comments later. If Johan is on the line, can we confirm you’re there? It seems we might have lost him. I’ll manage the dynamics. Regarding supply and demand, we are entering a new year. We've observed some dry conditions in parts of Central and South America, including Ecuador, along with weather volatility. We anticipate that this could lead to reduced volume. In North America, the retail price is facing increased competitive pressure, which has impacted pricing. In 2024, the European market has maintained balance, with the adjusted EBITDA reflecting important break costs, finishing at an acceptable level. Overall, we expect a solid year for the banana segment, and within the entire segment, pineapples continue to perform well, driven by innovation and development. The planting category is also improving, as the consumption of plantains in North America and Europe rises. There’s considerable progress in that division with complementary product lines and additional categories that align well with their offerings. With our excellent management team in that segment, we have all the right components in place, and this has been our most significant investment and primary EBITDA driver.

Johan Linden, COO

So, do you hear me now, Rory?

Rory Byrne, CEO

We've got you now, Johan. Yes, sorry.

Johan Linden, COO

Okay, sorry. Just then, maybe to add a little bit. I don't know what happened there, but the overall industry supply is down compared year-over-year, it's driven by El Niño, but we are very well supplied because of our diversification and ag practices that we have. So we have not been disrupted by the rain as much as others. We have seen shipping disturbance as well because of the Panama Canal. But with our own ships, we've been able to handle that better than the industry. So overall for us, we see stable demand and a balanced supply. So we feel good, as Rory said, about the future.

Adam Samuelson, Analyst

Okay, that's helpful. If I could ask a follow-up on cash flow, if we were to look at the EBITDA guidance, at least the start of the year, $385 million on a like-for-like basis, you've given the interest expense, you've given CapEx. How should we think about other kind of items that would affect free cash flow, including the dividends and noncontrolling, the equity earnings, cash taxes, working capital, just as we think about kind of the underlying cash conversion before any asset or business sales?

Jacinta Devine, CFO

Hi, good morning, Adam. I suppose first of all, just to restate that 2023 was positively impacted by a couple of things, the unwind of consumable stocks from the supply chain disruption in 2022, and that was a positive for us. And also, one of the important things in our industry is the impact of seasons over quarters, and in particular, the Chilean cherry season over the year end. So that had a positive impact, a very strong positive impact for Q4. As we go into 2024, we'll see the usual outflow of working capital that we would typically see, maybe a little bit heightened because of the inflow we had in Q4. And so working capital, we wouldn't expect to see the same benefits from working capital going into 2024, as we've seen in 2023. Other things, part of the things I've called out would be like-for-like Adam, based on the current year.

Adam Samuelson, Analyst

Okay, that's helpful. Just one other quick follow-up. The income, discontinued operations was actually income in the quarter. What does the fresh vegetable business do in EBITDA in the fourth quarter and for the full year ‘23?

Jacinta Devine, CFO

We don't break that out separately, but our underlying performance is better year-on-year, but we don't break out adjusted EBITDA for the veg segment any further.

Operator, Operator

Our next question comes from Gary Martin from Davy.

Unidentified Analyst, Analyst

Hi, Rory, this is Dan Yuhan. Just first off, congrats on a really, really strong year. Just a few questions on my side. I guess just kind of starting off and I'm conscious, I know you can't really give kind of too much detail on the Progressive deal until it's closed, but I guess maybe just kind of some high-level color whether the deal was opportunistic in nature, maybe kind of dial in to just how the kind of the nature of the product portfolio differed to diversify into Americas. That's just my first question. And then just second, I think it'd be useful just to kind of dial in to some of the moving parts around costs, and just how you see that evolving in FY24? Thanks.

Rory Byrne, CEO

Okay, I mean, Progressive, I suppose as an organization, we've always tried to be opportunistic and agile and flexible in terms of how we look at business. And we're not normally sellers of businesses like this. In this particular case, it's a very much a standalone segment, focused on potatoes and onions, asparagus, and a few other products that are a little bit unique for our American operations. I suppose the minority shareholders that we had a 35% shareholder. They wanted to explore liquidity options legitimately, so we as well, obviously looking at value, looking at the interest rates remaining high, perhaps even the absolute level of debt, hoping and overhang to some degree on our share price. Again, something that I had landed the call earlier, as you know, this unusual circumstance where you have the private market valuations are higher and significantly higher in some cases than the public market valuations, it is a little bit hard to understand that this is the growth group, the group with the asset base we've got, with the customers we've got, with the services we've got that it warrants a significantly lower overall rating than one subsection, which is a good business of the business. So putting all of those together we've got an attractive offer and we decided to take it. And then on your second question about costs and input costs and that, yes, which we're seeing stability in some of the input costs at the farming level, cartons, fertilizers, inputs like that. And then at the international freight level, there have been some significant reductions, but obviously that's a whole pass through in our two diversified divisions and being able to fix costs in our own shipping primarily in the first group division. So I think that stability, though, makes managing and planning a little bit better, it's helpful to the consumer, it may encourage more volume throughput to the system, particularly with freight rates or a product source out of Chile or South Africa or other long-haul products. So, a more balanced and a moderation of inflation in those categories for sure.

Operator, Operator

Our next question comes from Chris Barnes from Deutsche Bank.

Christopher Barnes, Analyst

Hi, thanks for the question. I just wanted to ask on the diversified EMEA business. I mean, throughout the last year, you drove nice like-for-like growth in revenue and EBITDA as well as margin improvement, particularly in the fourth quarter. So could you maybe just unpack the drivers of that performance on the top line and on profits and what's underpinning your confidence that you can continue to drive strong performance over, on this elevated base over 2024?

Rory Byrne, CEO

Yes, I think we've got a strong position in many European markets, with a number one player in Sweden and Denmark and Spain, in the UK and Ireland, strong position in Holland, strong position at our Hamburg office in Germany, and number one position in the Czech Republic. So you put all of that together with a strong customer base, mature business, well-developed team. And I would also say that we had some favorable tailwinds in 2023 that a lot of those businesses all work pretty well. They're solid, steady, consistent growth businesses. So we're optimistic that we can continue on that path. There are, I think I said in the introductory remarks as well, they are ripe for some further consolidation in food service and wholesale, some smaller businesses, we're constantly looking at adding in, not material acquisitions, but interest in bolt-on acquisitions within that segment, which should help to continue the growth path for that division.

Christopher Barnes, Analyst

Got it, that's helpful. And then I just, I had a follow-up question on the Progressive Produce transaction. I believe it was consolidated in the Diversified Americas segment, but correct me if that's wrong.

Rory Byrne, CEO

That’s correct, Chris.

Christopher Barnes, Analyst

Okay, got. Is there any reason to believe that the margin profile of Progressive was materially different from the balance of the segment? Or is it roughly in the same ballpark, 2% to 3%? Thanks.

Rory Byrne, CEO

I think we'll give, we've said with the Q1 numbers, when we get the transaction close, we'll give a little bit further color on that Chris, but for the moment, and we won't go into that any further.

Operator, Operator

Thank you. We don't have any questions at the moment. I'd now like to hand back over to management for the closing remarks.

Rory Byrne, CEO

Thank you. Well, thank you all for joining us today. And so I think it's been a great pleasure to look back over 2023 as a year of extremely positive momentum for what is now the one group of Dole plc. And I think we've done very well. We're very lucky to have the people we have. We're very lucky to have the customers and suppliers who provide us with so much support. I think we're really well positioned, hopefully to continue for a strong 2024 as well. So thank you all for joining us.

Operator, Operator

Thank you for attending this conference call. You may now all disconnect. Have a wonderful day.