Dole - Earnings Call - Q2 2025

Transcript

Speaker 4

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. Currently, all participants are in 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 the Head of Investor Relations with Dole plc, James O'Regan.

Speaker 5

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 for 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 the reconciliation to the most comparable GAAP measures. With that, I'm pleased to turn today's call over to Rory.

Speaker 0

Thank you, James. Welcome, everybody, and thank you for joining us today as we discuss our second quarter results for 2025. Time pressed to do the highlights for the second quarter on slide four. We are 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 food, despite some of the expected short-term challenges that we continue 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 Arrow 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, in particular 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. Turning now to the operational review and starting with fresh fruit on slide six.

Fresh fruit delivered a strong performance in the second quarter with adjusted EBITDA of $72.7 million, a result which 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 Sarah 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.

For the European market, 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 continue 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 current quarter. In addition to our own impacts from Tropical Storm Sarah, some other industry-specific challenges and less favorable weather conditions in much of Central America, as well as strong market demand, have 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 of 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 UK, Spain, and the Netherlands. This 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 continue to see similar operation trends to those of the first quarter.

In particular, we continue to see sales into 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 eight, 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 on the Southern Hemisphere export side due to a stronger than anticipated conclusion in 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 will have further opportunities to continue the strong momentum established this year and the years ahead. With that, I'll hand you over to Jacinta to give the financial review of the second quarter.

Speaker 3

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 profits and a higher gain in asset sales, partially offset by higher SMG&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 non-cash 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 measure, 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 to $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 division 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, pineapples, 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 Sarah, 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 UK, Spain, Scandinavia, and the Netherlands, as well as the $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 leg-for-leg basis, revenue increased 11.4% or $107.8 million. Adjusted EBITDA increased 14.7% or $6.3 million, primarily driven by increases in the UK, 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 leg-for-leg 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 leg-for-leg 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 markets in kiwi, citrus, and avocados. On a leg-for-leg basis, adjusted EBITDA increased 26.6%. Now, turning to capital allocation and our balance sheets. 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 typical 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, and in particular 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, and under the assumption that base rates will remain broadly stable for the remainder of 2025, and having factored in the benefit 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 on record on September 15. Now, I'll hand you back to Rory, who will give an update on our full-year outlook.

Speaker 5

We are very pleased with our performance in the second quarter, continuing up the positive momentum and putting us in a good place to achieve our full-year targets, and there continues to be a dynamic macroeconomic environment. Overall, we're happy with how our business, 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 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 Sarah last year, albeit significantly supported by insurance proceeds. Circling back to the disposal of the fresh vegetables division, this was a key strategic part of the group, and its completion provides us with enhanced strategic clarity as we move into the remainder of 2025 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 have 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 of the stakeholders for the continued support. With that, I'll hand the call back to the operator to open the line for questions.

Speaker 4

Opening the floor for a question and answer session. If you'd like to ask a question, please press star followed by one on your telephone keypad. That's star followed by one on your telephone keypad. Your first question comes from the line of Christopher Barnes of Deutsche Bank. Your line is now open.

Speaker 1

Good morning. Good afternoon. A very strong quarter across divisions and regions. 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. I'm just trying to reconcile that with the implied decline of 12% to 6% in the back half on EBITDA. Any additional color would be helpful. Thanks.

Speaker 5

Yeah, thanks, Christopher. I mean, obviously, I think the first thing to say is we had a really strong 2024, and we finished, in particular, the latter part of 2024 in a very strong way. We started out the year with the impact of Storm Sarah in Honduras. There's been a fair bit of evolution in terms of weather issues in Central America, in particular, and that's switched a lot of sourcing for the, I suppose, the safety valve volume. Chiquita had an issue in Panama that meant that they've had to source more. What that has done is it's driven up the price in Ecuador, the export price out of Ecuador for spot purchasing has gone up extremely highly. That impacts on the sourcing costs and the disruption from your traditional sources if you've got lower volumes.

It does have an impact on your, a negative impact on your EBITDA. I think forecasting, it is just very, very difficult. There is, until we get greater, I suppose, transparency or a greater settling of the U.S.'s international trade relationships with so many trading partners, the world will continue to be volatile. It's very difficult and challenging to manage against that backdrop with tariff rates changing up and down. I think with that, we probably have taken a conservative view to our guidance. We'll do our best as ever to beat it, but putting all the factors into the mix. In particular, we do think we're going to have a weaker Q3 taking account of those higher supply issues and the disruption that that's causing to our own sourcing platform. I hope that gives you some color on it, Christopher.

I mean, we're feeling good about light, but we do need to be a little bit cautious in the context of those supply issues in the fresh fruit division.

Speaker 1

No, that is helpful. I guess maybe just to follow up around that, you mentioned tariff 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, that if we do get relief on tariff in the future, given the lack of commercially available cultivation of pineapples and bananas domestically, if you have to unwind some of that pricing, how do you marry that with the fact that sourcing costs are just higher? I know you mentioned the Chiquita issue in Panama and, you know, Monty last week or two weeks ago called out Costa Rican volumes and Black Sigatoka. I am just trying to marry all of that. Are you able to push through incremental pricing given the strength of volumes you've seen, or any additional thoughts there would be helpful. Thanks.

Speaker 5

Yeah, I mean, obviously, we operate in a very dynamic world, Christopher. It's not just a mathematical case of taking one variable and being able to adjust the pricing. Yields can go down. There are some Sigatoka issues in Central America, and production inputs can go up while they can have an input. We've seen great volatility on the foreign exchange. We've seen some disruption on shipping flows. Duty and tariffs are just another variable to cope with in that equation, and it goes into the mix of trying to determine our ultimate pricing. There are a lot of variables at play, as ever and at the moment. 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 at any given point in time.

Speaker 1

Got it. That's helpful, Rory. 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 that business is no longer part of your organization? Of the $90 million of cash proceeds that you received, is your thinking still to utilize the majority of that for debt paydown, or has that thinking changed?

Speaker 5

Yeah, I mean, obviously, in the short term, the net proceeds will be used to pay down debt. I think what it does is it gives us a clearer picture and a clearer strategic focus in terms of capital allocation and what we do now that we've got certainty around the outcome of the vegetable division. I think it allows us to refocus. It's been a long process, a complex process. There was a lot of uncertainty. Ultimately, we got there and it dragged on a long time, and we did have to have a plan B in place in the event that we weren't going to be able to get it over the line.

I think all of the issues that you raised there in terms of capital allocation, it does give us a clearer path now to measure what the appropriate cost structure is for the business that we currently operate on. We will do that as quickly as we can.

Speaker 1

Great. Very helpful. I'll pass it on.

Speaker 5

Thank you, Christopher.

Speaker 4

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

Speaker 2

Hi, good morning. Thanks for the questions. Maybe just a couple of follow-ups to Chris's questioning. I think, you know, on the tight industry supply carrying into the third quarter, it makes sense at least on the pineapple and banana side. I'm just curious if you have line of sight kind of 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? Just any additional comments there would be helpful.

Speaker 5

Yeah, I mean, I suppose one of the key things that I have said to all our investors on our end is that 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 a year. Just as an aside, I suppose the overall outcome for our fresh fruit division over the course of the year, we think would be more than satisfactory. I think the current supply disruptions will certainly be real and having an impact in Q3. We think they'll go into Q4, but it's amazing how this industry rights itself very quickly. We're hopeful going into next year with contract price negotiation and other things that will persist, that we'll be able to adjust all of the right variables to continue the underlying financial performance in this division.

Speaker 2

Okay, helpful. On the tariff front, I know that we talked a little bit about the rates moving around a bit, but just have you had any more discussions, whether with local governments, administration, anybody who will frankly listen to you on exclusions for items that obviously can't be grown in the U.S.? I mean, seemingly, I think you've had some peers that have maybe had that conversation progress a bit, but just curious if there's anything new on your front. Thanks very much.

Speaker 5

Yeah, I mean, obviously, we've been saying from the outset that we think our industry is actually a very good example of the huge positives of international trade. You know, year-round supply of healthy products really goes into the concept of making America healthy again or indeed making the world healthy again. We really don't believe that the tariffs are focused on our sector. We have heard some public statements by the U.S. administration where they've confirmed that products like tropical produce that can't be actually produced in the U.S. will ultimately get exempted. I think there's a process whereby it hopefully will form part of the individual trade deals that ultimately are concluded with the source countries that we operate with. It'll be some short-term disruption.

We'll work our way through it in a satisfactory way, and then hopefully over time, it settles down in a constructive and positive way for everybody.

Speaker 2

Thank you.

Speaker 4

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

Speaker 6

Hi, Rory, Jacinta, and Johan. Congrats on another strong set of results and the recent sale of fresh veg. Just a few questions on my side. I'll start on the fresh veg disposal. It'd just be good to get a bit more color on the deal overall. Potentially just maybe getting some color on the timeline of the seller note repayment and the earnout, and also maybe just a bit of background on the retention of the two facilities. Is there a plan there? Is it a leaseback? Is there going to be a potential there for a further sale? It'd just be good to get a bit of color around that just to start with.

Speaker 5

Yeah, the note is a $50 million payment-in-kind note with interest accruing at 5%, and it's payable at a fixed maturity base in five years' time. On the facilities, it just evolved as part of what was a complex negotiation and a very complex transaction, where Arrow Capital Partners and organic garlic acquired Braga, and then once that was done, simultaneously acquire our business. As you can imagine, with those kind of complexities, it was a complex transaction. We have agreed to give a five-year rent-free usage of Yuma and Heron, and thereafter, we negotiated a commercial rent or we will be able to crystallize the value of those assets. Our valuations we've got are something of the order of $40 million.

Speaker 6

That's really good. It'd be helpful. Just as a kind of second order question, just around the future internal and external development opportunities off the back of it. I know that you've talked about internal projects within Dole plc before, but I mean, it'd just be good to get maybe a bit of incremental color on what to do with the kind of additional balance sheet freedom. Also, on top of that, I think you'd mentioned in your prepared remarks that you were seeing additional investment opportunities across fresh produce, diversified EMEA. Is there anything that you'd go into in color there or in extra detail there? Is there any color that you'd potentially give on the M&A market as a whole? Has it slightly recovered versus where it was previously? Thanks.

Speaker 5

Yeah, I mean, we do keep, as you know, Gary, we keep a very close eye, and we look at lots of acquisition opportunities. We've seen quite a few, we've had quite a lot of approaches, particularly from the private equity sector looking for exits. There is certainly a valuation gap for interesting companies compared to the public market valuation. It's taken a little bit longer than I would have liked for perhaps our share price to move up a little bit to narrow that gap. We will only do acquisitions that fulfill the criteria that they give an added value to our shareholder base. I think the whole question of capital allocation is a good opportunity for us to refresh, now that we have the veg deal out of the way, and we've a clear strategic path.

We're in the middle of studying a number of interesting projects in Scandinavia to bolt on and interesting developments to our existing facilities in Spain and Ireland. We're looking at a couple of add-on projects in Chile, Peru, our fresh fruit business. We're always looking at add-ons, whether it's in plantains or limes or maybe even some sourcing in bananas. We're developing in France. We may upgrade our facilities in France. There are lots of projects spread across different elements of the group. Obviously, the smaller projects that make sense to continue our core organic growth, we'll pretty much always support. We keep a close eye on all of the other capital allocation opportunities that are out there as well.

Speaker 6

Perfect. Maybe just to pivot towards trading more generally, I don't want to labor on the issue, but just on the tariff side of things. It's challenging to distinguish how much has actually been passed through at the minute. I mean, it would just be good to get any degree of color on any perceived elasticity to date.

Speaker 5

Yeah, I think the good thing about most of our products is that, you know, certainly bananas are very cheap on a per kilo or a per pound base compared to pretty much any other fruit. We think there's plenty of scope if the price needs to move either through tariffs or through short sourcing or complex sourcing issues or foreign exchange or other issues that arise in it. The price could go up, I believe, by a reasonable % and have no impact on consumption. Other products, import products, be it grapes or both pears, kiwis, they're depending on supply and demand over a long period of time. There's been quite a bit of volatility on the price. I think consumers are on seasonal sourcing. That's European source versus South Africa or Chile source. There can be quite a difference in price.

I think we're not seeing any impacts that are having an unduly negative impact on the demand for our products.

Speaker 6

That's really, really helpful. Perhaps just one final one, just on diversified fresh produce in Americas and the rest of the world. It was a strong leg-to-leg performance, but it was particularly robust to adjusted EBITDA performance. I think the differential there is almost 20% in terms of performance. It'd just be good to get a bit of color on what drove that additional, you know, that 27% increase in adjusted EBITDA in that particular division. Was it mixed benefit? What's the best way to think about it?

Speaker 5

Yeah, I think most of the individual underlying businesses within that division performed very well. We've a strong footing through our 65% ownership of Oppy, and the great management team there have really managed the development of that business very well and performed very solidly in the first half of the year. Our South American business, as we called it, I think we managed significantly really well. How we closed out our cherry season, how we closed out our grape season. We've done well on apples. We've done well on kiwis. We added a few new pieces on the avocado front. They've also performed strongly. Our import activity was a little weaker, and we're working on a solution to try and improve that going forward. It is just one of those periods where good management focus on all aspects of the business from South America to North America.

Our leadership team there have done well at bringing together in a good synergistic way all the activities within that division, and we're seeing the benefits coming through in the numbers.

Speaker 6

That's really, really helpful. Like I said, one final one, I promise. Just around the CAPEX guide, I see that you've held maintenance at $100 million. It'd just be good to kind of parse the additional CAPEX from the developments that are following the Storm Sarah in Honduras. Versus where we were at Q1, has there been too much change in terms of the expected additional CAPEX required?

Speaker 5

No, no material change, Gary, on that in Q1. That's what's come along.

Speaker 6

Perfect. Excellent. I'll pass it on. Thanks so much.

Speaker 5

Thanks, Gary.

Speaker 4

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

Speaker 5

Thank you. Thank you everybody for joining us today. 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 managed to push up the dividend to 6.5%. We've pushed up our guidance a little bit. We've made some really strong strategic project progress in terms of getting clarity around and a good outcome for the vegetable business. Thank you all, and we believe we're well positioned for continuing further growth. Thank you.

Speaker 4

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