Earnings Call Transcript - FDP Q3 2025

Operator, Operator

Good day, everyone, and welcome to Fresh Del Monte Produce's Third Quarter 2025 Earnings Conference Call. Today's conference call is being broadcast live over the Internet and is also being recorded for playback purposes. For opening remarks and introductions, I would like to turn today's call over to the Vice President, Investor Relations with Fresh Del Monte Produce, Ms. Christine Cannella. Please go ahead, Ms. Cannella.

Christine Cannella, Vice President, Investor Relations

Thank you, Regina. Good day, everyone, and thank you for joining our third quarter 2025 conference call. Joining me in today's discussion are Mr. Mohammad Abu-Ghazaleh, Chairman and Chief Executive Officer; and Ms. Monica Vicente, Senior Vice President and Chief Financial Officer. I hope that you have had a chance to review the press release that was issued earlier via Business Wire. You may also visit the company's IR website at investorrelations.freshdelmonte.com to access today's earnings materials and to register for future distribution. This conference call is being webcast live on our website and will be available for replay after this call. Please note that our press release and our call today include non-GAAP measures. Reconciliations of these non-GAAP financial measures are set forth in the press release and earnings presentation, which is available on our website. I would like to remind you that much of the information we will be speaking to today, including the answers we give in response to your questions, may include forward-looking statements within the safe harbor provisions of the federal securities laws. In today's press release and in our SEC filings, we detail risks that may cause our future results to differ materially from these forward-looking statements. Our statements are as of today, October 29, 2025, and we have no obligation to update any forward-looking statements we may make. During the call, we will provide a business update along with an overview of our third quarter 2025 financial results, followed by a question-and-answer session. With that, I will turn today's call over to Mr. Mohammad Abu-Ghazaleh. Please go ahead.

Mohammad Abu-Ghazaleh, Chairman and CEO

Thank you, Christine, and thank you for joining us for our third quarter 2025 earnings call. We delivered another quarter of steady progress supported by strong execution across our portfolio. We saw continued gross margin expansion in our fresh and value-added product segment, and our pineapple program continues to perform well. Overall, our third quarter results reflect our ongoing shift towards higher-margin value-added categories, a key driver of profitable growth. We also took important steps this quarter to enhance long-term productivity and strengthen our financial performance. Most notably, we entered into an agreement to divest the operations of Mann Packing, a business that has not met our profitability expectations. We believe this divestiture will strengthen our overall margin profile and enhance capital efficiency going forward. While these decisions are never easy, they underscore our disciplined approach to managing performance and ensuring that every part of our business contributes meaningfully to our bottom line. I would like to discuss a challenge facing the entire industry, the mounting pressure on global banana production, which I addressed last quarter and has since then only intensified. The Tropical Race 4, known as TR4, was confirmed in Ecuador, one of the world's largest banana producers, marking a serious escalation in Latin America after previous detections in Colombia, Peru, and Venezuela. It is a highly contagious soil-borne disease with no cure, and it is already destabilizing the region. In Peru, where TR4 was first detected in 2021, the impact is noticeable in the Pura region, the country's leading producer of organic bananas. A recent study found that 45% of farms are already infected and about 10% have been completely eradicated. Small growers are under mounting pressure as black sigatoka spreads and TR4 reaches new countries. With already thin margins across the sector, rising disease control costs are making survival increasingly difficult. At Fresh Del Monte, we have been preparing for these challenges for years. We are advancing work on TR4-resistant banana varieties, an essential step toward long-term resilience, but solutions of that scale take time. In the meantime, growers, both large and small, are taking every possible measure to control these diseases. Each year, these efforts are becoming more demanding as the situation continues to deteriorate, placing new financial strains on growers across the industry. We are seeing the impact clearly in Costa Rica. As of August 25, production in the industry has declined 22% year-over-year, which corresponds to roughly 18 million boxes lost, with most of that loss stemming directly from Black Sigatoka. For a country long recognized for its agricultural efficiency, this is a significant and concerning decline, one that inevitably drives costs higher across the industry. Demand for bananas remains strong. What is shifting is the balance between supply and demand and the underlying economics of the category. Understanding that shift is essential for everyone involved. Sustaining this category over the long term will require closer alignment across the value chain to ensure that pressures in the fields are understood and shared throughout the supply chain. Farmers can no longer absorb these rising costs. It is easy to take bananas for granted—simple, familiar, always there. But behind that simplicity lies one of agriculture's most coordinated and collaborative supply chains. Protecting it is our shared responsibility. If we do not act collectively to support growers and stabilize this supply chain, we risk seeing this fruit and the livelihoods behind it disappear before our eyes. That reality weighs heavily on me and drives much of our focus today. With that, I will turn it over to Monica Vicente, our CFO, to discuss our financial results.

Monica Vicente, CFO

Thank you, Mr. Abu-Ghazaleh, and good morning to everyone, and thank you for joining us today. Before reviewing our quarterly financials, I would like to highlight several strategic actions we took during the quarter to strengthen our portfolio and drive long-term value. We made important decisions to streamline operations and reallocate capital towards higher-performing areas, which resulted in an impairment charge totaling $56 million. $18 million relates to the planned divestiture of Mann Packing, which Mr. Abu-Ghazaleh already mentioned. This supports our strategy to simplify operations and prioritize higher growth, higher-margin categories. We acquired Mann Packing in 2018 and have now entered into an agreement to sell the business, including substantially all operating assets. The buyer, Church Brothers Farms, will acquire machinery and equipment along with the customer list for $19 million plus the value of inventory at closing. The transaction excludes certain real property, including our Gonzales, California facility, which we've agreed to lease for under a 5-year agreement with renewal and purchase options. This divestiture is expected to close during the fourth quarter of 2025, subject to customary closing conditions. Mann Packing contributed $174 million in net sales during the first 9 months but was a headwind to our strategic margin targets for the fresh and value-added products segment. We had previously pursued streamlining efforts; however, after further evaluation, we determined that a full divestiture better aligns with our long-term strategy. During the quarter, we also recorded $37 million in impairment and other charges related to underperforming banana farms in the Philippines, which served our Asia and Middle East markets. Despite efforts to improve yields and manage costs, these farms continue to underperform, impacting profitability. After reassessing performance, we made the decision to abandon operations at these farms. This move enables us to reallocate resources to more productive supply channels. Continuing with our broader efficiency efforts, we sold a break bulk shipping vessel from our fleet during the quarter and recently completed the sale of a second vessel. This reflects our continued shift away from legacy breakbulk vessels, and we remain committed to our vertically integrated logistics model, operating 6 modern vessels supporting our global supply chain. Let's now review our financial results for the third quarter of 2025, including adjusted results, which exclude the impact of the Mann Packing divestiture. Net sales were $1.022 billion. The increase reflects higher net sales in our Banana and Other Product Services segments, primarily driven by higher per unit selling prices in our Banana segment. Contributing factors included the impact of tariff-related price adjustments in North America and the favorable impact of fluctuations in exchange rates related to the euro. The increase was partially offset by lower sales volume in our fresh-cut vegetable product line due to operational reductions taken during the fourth quarter of 2024. Adjusted net sales were $960 million. Gross profit was $81 million. The decrease was primarily driven by higher per unit production and procurement costs in the banana segment, along with increased distribution costs. Gross margin decreased to 7.9%. Adjusted gross profit was $88 million, and adjusted gross margin decreased to 9.2%. Despite margin compression, this quarter reflects the resilience of our core business strength and early progress from our shift toward higher-margin value-added categories. We expect margin recovery and improved efficiency ahead, supported by the Mann Packing divestiture and continued cost discipline. We reported an operating loss of $22 million, which reflects higher asset impairment and exit charges related to the underperforming banana farms in the Philippines and the impairment charges associated with the divestiture of Mann Packing, along with lower gross profit in the current period. On an adjusted basis, operating income was $40 million. Net loss attributable to Fresh Del Monte was $29 million, whereas on an adjusted basis, net income attributed to Fresh Del Monte was $33 million. Our diluted earnings per share was a loss of $0.61, while adjusted diluted earnings per share was income of $0.69. Adjusted EBITDA was $58 million. We expect adjusted EBITDA margin to improve due to continued gross margin momentum in our fresh and value-added products segment and disciplined cost management. Let's take a closer look at the financial performance of our business segments, starting with our fresh and value-added products segment. Net sales were $611 million. The decrease was primarily due to lower per unit selling prices in our avocado product line, driven by increased industry supply and lower net sales in our fresh-cut vegetable product line, following the operational reductions implemented during the fourth quarter of 2024, as previously mentioned. Offsetting factors included higher sales volume and per unit selling prices in our fresh-cut fruit product line and increased per unit selling prices in our pineapple product line, along with tariff-related price adjustments in North America. Adjusted net sales were $548 million. Gross profit was $68 million. The increase was driven by higher per unit selling prices in the pineapple and fresh-cut fruit product lines. Gross margin increased to 11.2%, and adjusted gross profit was $76 million with adjusted gross margin increasing to 13.9%. We aim to sustain gross margins in the low to mid-teens for this segment, driven by continued improvements in our product mix within this segment. Now moving to the banana reporting segment. Net sales were $358 million. The increase was driven by higher per unit selling prices across all regions, including the favorable impact of fluctuations in exchange rates, combined with the tariff-related price adjustments in North America and higher sales volume in the Middle East. These gains were partially offset by lower sales volume in Asia and North America, reflecting softness in market demand during the quarter. Gross profit was $5 million, and the decrease was driven by higher per unit production and procurement costs due to adverse weather conditions in our growing regions in the first half of this year, increased distribution costs along with an allowance recorded on our receivable from an independent grower in Asia. Gross margin decreased to 1.3%. Adjusted gross profit was $4 million, and adjusted gross margin decreased to 1.2%. Lastly, our Other Products and Services segment. Net sales were $53 million. The increase was a result of higher net sales in our third-party freight services business, partially offset by lower per unit selling prices in our poultry and meats business. Gross profit was $8 million. The decrease was due to lower net sales and higher production costs in our poultry and meats business. Gross margin decreased to 14.8%. Now moving to selected financial results for the third quarter of 2025. Our income tax provision was $4 million. The decrease was primarily driven by lower earnings in certain higher tax jurisdictions. Net cash provided by operating activities was $234 million for the first 9 months. The increase was primarily due to working capital fluctuations, mainly lower accounts receivable driven by timing of collections and reduced finished goods inventory. At the end of the third quarter of 2025, our long-term debt stood at $173 million. Our adjusted leverage ratio remains well below 1x EBITDA. Capital expenditures for the first 9 months of 2025 totaled $36 million. Investments during the quarter focused on enhancing our banana and pineapple operations in Central America, upgrading operations and production facilities in North America, along with improving our pineapple operation in Kenya. As announced in our press release, we declared a quarterly cash dividend of $0.30 per share payable on December 5, 2025, to shareholders of record as of November 12, 2025. On an annualized basis, this equates to $1.20 per share, representing a dividend yield of 3.4% based on our current share price. During the third quarter, we repurchased just over 200,000 shares of our common stock for $7 million at an average price of $35.55 per share. We still have $135 million available under our share repurchase program. Taken together, these actions reflect our commitment to delivering long-term value, supported by a strong sustainable dividend and a balanced capital allocation strategy that includes opportunistic share repurchases. With that, let's turn to the outlook for the remainder of the year and the strategic priorities. We continue to expect net sales growth of approximately 2% year-over-year, consistent with our prior guidance. As far as gross margins by business segment, in our fresh and value-added products segment, excluding the impact of the divestiture of Mann Packing, gross margin is expected to be in the 11% to 13% range, primarily driven by strong performance in our pineapple product line and favorable product mix. While the divestiture of Mann Packing is scheduled to close on December 15, we expect to begin realizing the benefits of the streamlined portfolio in the fourth quarter of 2025, with a more pronounced impact on profitability and margin performance in 2026. In our banana segment, gross margin is expected to compress below the historical 5% to 7% range, approaching 4% due to lower industry-wide supply and cost pressures from disease treatments as well as weather-related disruptions, which continue to cause shipping delays and port congestion. Both factors have significantly increased our costs. It's important to remember that with the banana segment, our focus remains on margin discipline over volume, and we continue to prioritize product quality and reliability for our customers even in the face of these extraordinary challenges. Bananas remain a foundational part of our product portfolio, essential for meeting customer expectations and supporting our broader commercial strategy, even if it's not a driver of growth. For our Products and Services segment, gross margin is expected to be in the range of 10% to 12%, slightly below prior expectations. This reflects lower selling prices in our poultry and meats business, which are pressuring margins. Selling, general and administrative expenses are expected to be in the range of $205 million to $207 million. Regarding CapEx, we now expect our full-year spend to be in the range of $60 million to $70 million, down from $70 million to $80 million previously communicated. This reflects updated project timelines. Net cash provided by operating activities is expected to exceed the previously guided range of $180 million to $190 million, coming closer to $190 million to $200 million. In closing, we continue to actively manage external pressures, including elevated operating costs and macroeconomic uncertainty. The strategic actions we've taken this year—streamlining our portfolio, reallocating capital, and enhancing supply chain resilience—position us to navigate the rest of the year with agility and focus. These actions reflect our commitment to disciplined execution and long-term value creation. This concludes our financial review. We can now turn the call over to Q&A.

Operator, Operator

Our first question will come from Mitch Pinheiro with Sturdivant & Company.

Mitchell Pinheiro, Analyst

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

Monica Vicente, CFO

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

Mitchell Pinheiro, Analyst

And so I haven't seen the Q yet, but I'm curious about pineapples. Obviously, the supply has been down right now, but you're getting some pricing. Are your costs up in pineapples as well? Like you talked about with the bananas and extra costs at the farm level. But will pineapple margins still be your strongest in that segment?

Mohammad Abu-Ghazaleh, Chairman and CEO

Yes, that's a fact. And when it comes to cost, thank God, pineapples don't suffer from the same diseases or plagues that are affecting bananas. So we don't see increases in terms of applications of certain chemicals to our farms in the pineapple business. Therefore, we don’t expect significant cost increases on pineapples. And you are correct—the pineapple category has more or less static volumes, and the demand is outstripping supply. As we speak today, we do not have enough to allocate to every customer. So it’s more selective today than it was in the past.

Mitchell Pinheiro, Analyst

Yes, I've noticed you are the leader in innovation in pineapples and the marketing around it, but I'm also seeing some of your competitors starting to emulate some new product varieties. Do you sense that it is raising the value of the fruit with continued innovation and improved quality? Do consumers notice that?

Mohammad Abu-Ghazaleh, Chairman and CEO

Well, yes, of course. The better fruit you deliver to the market—the riper, with higher sugar content and better sweetness or taste—definitely has an influence on consumption and the buyers’ appetite to buy it. I mean, there’s no question that Del Monte has been at the forefront of innovation and development in this area. I wish the others good luck with whatever they are doing, but Del Monte has a history of being at the forefront of innovation, and I think that will remain in place.

Mitchell Pinheiro, Analyst

And you still see from a supply point of view, when do you estimate we will start to see demand recover?

Mohammad Abu-Ghazaleh, Chairman and CEO

I don’t think that supply is going to significantly increase in the coming years. There is not much land left available for banana production. For instance, in Costa Rica, we cannot double production, and it's impossible to increase by 20% or 30% more than currently. It's not easy to grow pineapples anywhere due to restrictions on land and environmental concerns. I believe global consumption will increase, and we see that not only in North America but in Europe, the Middle East, and Asia. It's a fashionable commodity now, especially due to the good quality of pineapples today. In the Middle East, we are almost 100% in the market because of our proximity from Kenya. Our Brazilian plantations are in progress, and in about 3 years, we will start production of the ND2 Gold pineapple in Brazil— which will be a significant milestone for us. We are also looking at expanding pineapple production in other areas as we speak.

Mitchell Pinheiro, Analyst

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

Mohammad Abu-Ghazaleh, Chairman and CEO

It could happen because Peru and Colombia are increasing volumes, along with other countries like Chile and California. The Mexicans have not had that opportunity recently. So if you look at the prices year-over-year, we were talking about $70 to $80 per box of avocado; now it’s selling for almost half that. As a seller, this affects our revenue significantly, selling the same volume for much less. However, there could be a pickup in prices in the next 2-3 months, as Mexico will have more exclusive supply to North America. But I think it will not lead to a long-term increase in prices; I believe prices will remain between $30 and $50.

Monica Vicente, CFO

And remember, Mitch, we buy the product from the grower. So we have the margin based on what we buy and sell. Although the sale price is much lower, our costs are lower as well, keeping our margins relatively stable.

Mitchell Pinheiro, Analyst

So with pricing coming down, would you expect to see stronger consumption volumes?

Mohammad Abu-Ghazaleh, Chairman and CEO

I don’t see retail prices really reflecting that adjustment.

Mitchell Pinheiro, Analyst

Okay. And just switching gears to the fresh-cut fruit business—how is that performing?

Monica Vicente, CFO

Yes, Fresh-cut is performing excellently. We view that together with pineapple as one of our primary products, and it performed very well during the quarter, and we expect to continue with strong performance.

Mohammad Abu-Ghazaleh, Chairman and CEO

I don’t remember if I mentioned earlier last year that we started offering fresh guacamole in the market. We started this new category, which is 100% fresh guacamole. We started from zero, and I think we will end this year with about $8 million in revenue from that category alone. That tells you where our innovation is and where we are going with reasonably good margins.

Mitchell Pinheiro, Analyst

Yes, I just want to move on to the banana business. You laid out the issues very well. What I was curious about was why banana volume or consumption in North America is down. I am not sure what it is in Europe, but why is consumption down?

Mohammad Abu-Ghazaleh, Chairman and CEO

Well, it’s seasonal, I believe, Mitch. During summer, with all the summer fruits available, people typically go for options like watermelon, melons, and grapes. I don't believe this is a trend; it’s just a hiccup. Consumption will remain stable over time. The problem is that costs are increasing while prices are not moving in the same direction. The diseases are also not going away; they continue to spread and intensify. If you recall a few years back, I mentioned we would see bananas at $20 a box. We are almost there. Today, the fruit alone is around $11 to $12 per box, just for the fruit—without considering all the packaging and service costs. The total could reach $16, $17, and even more per box. We are talking about substantial increases and the seriousness of the diseases is not fully understood. It’s just a matter of time before we face larger losses.

Monica Vicente, CFO

And Mitch, you see our margin for bananas has suffered this quarter, and we are projecting closer to 4% for the year. The impact of the diseases is very significant, not only due to lower production but also due to high costs to protect the farms.

Mitchell Pinheiro, Analyst

Bananas are crucial in the fruit category, especially in the U.S. With all these added costs and historically thin margins, you would expect pricing to rise. However, there's been some irrationality among players in pricing. I noticed the four largest banana producers formed a new organization, VANA—does this cooperation indicate that there might be more rationality in banana pricing concerning rising costs?

Mohammad Abu-Ghazaleh, Chairman and CEO

I don’t think the organization by the four banana companies was primarily meant to influence volumes or pricing in the market. It's more about understanding the business better and finding solutions concerning agricultural practices and logistical issues. The reality, however, is that one day, we will wake up and suddenly there will not be enough bananas. I see this happening globally. I see this in the Philippines and Africa—production has dropped significantly. Ecuador, the largest producer, is currently not increasing production as it used to. People fail to realize how serious this industry situation is. As a company, we are very careful and calculated. We are here to generate profits for our shareholders, and will do whatever necessary to streamline our business model. With bananas, I believe the market will eventually recognize the insufficient supply leading to a significant price increase.

Mitchell Pinheiro, Analyst

One more question about Black Sigatoka. One mitigation effort could involve fewer trees, less canopy, and more sunlight. Any thoughts on that?

Mohammad Abu-Ghazaleh, Chairman and CEO

As I mentioned earlier, there’s a production decline of 18 million boxes in Costa Rica, mainly due to Sigatoka. This could happen in Ecuador, Guatemala, and Panama too; it's the same issue everywhere.

Mitchell Pinheiro, Analyst

Okay. And then just one other question on tariffs. Across your entire portfolio, how much did tariffs contribute to the top line?

Monica Vicente, CFO

We haven't provided that number, Mitch, but we managed to pass on the tariffs in North America.

Mohammad Abu-Ghazaleh, Chairman and CEO

It's really minimal. Not much at all.

Operator, Operator

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

Mohammad Abu-Ghazaleh, Chairman and CEO

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

Operator, Operator

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