Fresh Del Monte Produce - Earnings Call - Q1 2020

Transcript

Speaker 0

Good day, everyone, and welcome to Fresh Del Monte Produce First Quarter twenty twenty Conference Call. Today's call is being broadcasted live over the Internet and is also being recorded for playback purposes. At this time, participants are in a listen only mode. After the speakers' presentation, there will be a question and answer session. For opening remarks and introductions, I would like to now turn today's call over to the Vice President, Investor Relations with Fresh Del Monte Produce, Christine Canela.

Please go ahead, Ms. Canela.

Speaker 1

Thank you, Joanne. Good morning, everyone, and thank you for joining our first quarter twenty twenty conference call. As Joanne mentioned, I'm Christine Canoa, Vice President, Global Corporate Communications and Investor Relations with Fresh Almani Produce. Joining me in today's discussion are Mohamed Abougazali, Chairman and Chief Executive Officer and Eduardo Bezera, Senior Vice President and Chief Financial Officer. I hope that you had a chance to review the press release that was issued earlier this morning via Business Wire.

You may also visit the company's website at freshdelmonte.com for a copy of today's release as well as to register for future distributions. 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 includes reconciliations of any non GAAP financial measures we mention today to their corresponding GAAP measures. 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 provisions of the federal securities safe harbor laws. We ask that you review the forward looking statements information included in the press release we issued this morning and in the company's most recent filings with the SEC.

With that, I am pleased to turn today's call over to Mohamed.

Speaker 2

Thank you, Christine. I want to take a moment to acknowledge each of you for joining Fresh Del Monte Produce first quarter twenty twenty earnings conference call. It has been a very difficult few months for the world. Our thoughts go out to all the heroes working to keep people safe and healthy during this unprecedented evolving global pandemic. I want to extend my best wishes to you and your families that you stay safe and healthy.

I also want to extend my gratitude to our frontline team members for their commitment to providing healthy, convenient, fresh and prepared food products during this crisis. I will go directly to what is likely top of mind for all of us, the impact of the COVID-nineteen pandemic and the actions we have taken to support our team members and their families, customers, suppliers, and our local communities. At the outbreak of the pandemic, we immediately activated our global and regional executive crisis management teams to respond accordingly. At our production facilities where food safety has always been top of mind, we introduced additional operating procedures and safety protocols to include social distancing, thermal screenings and increased cleaning cycles to protect our production teams. We activated our supply chain contingency plans to mitigate any disruptions in our ability to service our customers.

Most recently, we voluntarily closed a distribution and fresh cut facility in Boston, Massachusetts for ten days due to team members being diagnosed with the COVID-nineteen. We shifted inventory and production from our Boston facilities and continued to meet demand and deliver uninterrupted service to our customers in the Northeastern U. S. As of today, our Boston facility is back in operation. Actions Other included having as many global employees as possible working remotely.

Our worldwide team members have rallied around maintaining business continuity during this critical time. And I am pleased with how quickly they adapted to the circumstances, especially our frontline teams that have kept our farms, plants and distribution centers running, allowing us to maintain our commitment to providing healthy, convenient and safe Del Monte branded products around the world. We are also collaborating in a number of ways with our local communities during this time of uncertainty, adding support wherever we can. Regarding our business, while we saw an increase in demand in our banana business, we did experience reduced demand for fresh and value added products as stay at home orders impacted the restaurant and food service industry. We anticipate this trend continuing in the near future as consumer adapt to social distancing.

Households manage unprecedented economic hardships and unemployment rates soar. I would like to add that our Mann Packing subsidiary had shown improved results in January and February as they are recovering from their fourth quarter twenty nineteen voluntary recall. However, the COVID-nineteen impact to the foodservice channel also reduced demand for man's meals and snacks and fresh cut vegetables product lines. We expect the trend to continue in the 2020 if conditions remain the same. Over the coming three months, we will be moving our operations to our new Gonzales, California facility, which will allow us to streamline and improve our production capabilities, customer service and reduce costs.

In addition, early in the quarter, we saw a reduction in our business in Asia as a result of supply and demand imbalances brought about by the closures and restrictions put in place in China logistics operations. This trend turned around in March as the Asia region showed signs of recovery and we began to see demand increase, especially for bananas. While we did experience a number of challenges in the quarter that softened top line sales, we took several actions to fortify our business and conserve liquidity, including halting our share repurchase program, reducing our dividend by 50%, postponing noncritical capital investments to the 2020 and establishing measures to reduce selling, general and administrative expenses going forward. All of these measures give me confidence that we will come out of this crisis stronger stronger than ever. What will the new normal be?

I believe we will see behavior changes in the market. One such example is the surge in e commerce category sales. While online grocery shopping rose at rapid pace during the pandemic, I believe consumer use usage has just begun, which is why in April, we broadened our distribution channels by introducing our online store in The United Arab Emirates with plans to roll out the concept to other countries soon. Now I would like to turn the call to Eduardo to talk about the first quarter financial results. Eduardo, please?

Speaker 3

Thank you, Mohamed, and good morning. I want to begin with a few words regarding the confidence we have in our cash and our current debt positions as we renewed our credit facility. As you are aware, we have considerable availability in our $1,100,000,000 credit line. Our leverage ratio for the 2020 was below 3.2 times EBITDA. In addition to availability on our credit line, the decision to halt our share repurchase program, reduce the interim cash dividend and postpone non critical capital investments, we strengthen our cash flow position for the second quarter.

In terms of liquidity, we were assured from our lenders we have no issues withdrawing down if needed. We generated cash this quarter and kept our level almost flat to the end of fiscal year twenty nineteen. So this speaks to the strength of our business. We continue to focus on reducing our debt while we continue to invest in critical high margin capital projects to drive efficiency in our operations and expand our value added business. While we see pressure on revenue and earnings in the short term, we see much opportunity for us to be ready for future growth when this crisis has passed.

Given all of our capabilities as Mohammad declared, I am confident Fresh Del Monte will weather these difficult times and emerge stronger from this challenge. With that, I will now get into the results for the first quarter of twenty twenty. Adjusted earnings per diluted share were $0.34 compared with adjusted earnings per diluted share of $0.46 in 2019. Net sales were $1,118,000,000 compared with $1,154,000,000 in first quarter twenty nineteen. With unfavorable exchange rates negatively impacting net sales by $8,000,000 We estimate that the COVID-nineteen pandemic impacted net sales during the 2020 by approximately $27,000,000 Adjusted gross profit was $77,000,000 compared with $95,000,000 in 2019.

Adjusted operating income for the quarter was $24,000,000 compared with $41,000,000 in the prior year. And adjusted net income was $16,000,000 compared with $23,000,000 in the first quarter of twenty nineteen. In regards to the product lines for the first quarter of twenty twenty, in our fresh and value added business segment, net sales decreased $29,000,000 to $661,000,000 compared with $690,000,000 in the prior year period. And gross profit decreased $19,000,000 to $43,000,000 compared with $62,000,000 in the first quarter of twenty nineteen. The decrease in net sales was primarily the result of lower net sales of fresh cut vegetables, pineapples, and meals and snacks, partially offset by higher net sales of avocados.

As compared with our original expectations, the COVID-nineteen pandemic affected our net sales of fresh and value added products by an estimated $21,000,000 during the quarter. Also, the continuing effect of November's man packing voluntary product recall affected our net sales in the first quarter of twenty twenty. In our pineapple category, net sales were $102,000,000 compared to $111,000,000 in the prior year period, primarily due to lower sales volume in North America, Asia and Europe as a result of lower production in our Costa Rica and Philippines operations, primarily due to unfavorable growing conditions. Also contributing to the decrease in net sales was the impact of the COVID-nineteen pandemic, which resulted in lower demand for pineapples across all of our regions. Partially offsetting this decrease were higher selling prices in North America and Europe and higher sales volume in The Middle East as a result of expanded sales to existing markets and additional shipments from our Kenya operation.

Overall volume was 16% lower, unit pricing was 9% higher, and unit cost was 6% higher than the prior year period. In our fresh cut fruit category, net sales were $118,000,000 in line with the prior year period. Net sales were impacted by lower demand in our food service distribution channel as a result of social distancing measures imposed by governments around the world. Overall volume and no need pricing were in line with the prior year period, and unit cost was 1% higher than the first quarter of twenty nineteen. In our fresh cut vegetable category, net sales were $103,000,000 compared with $119,000,000 in the first quarter of twenty nineteen.

Decrease in net sales was due to the effect of the COVID-nineteen pandemic, which a significant reduction of our food service business during the month of March, mainly in our man packing subsidiary. We also faced the continuing effect of our voluntary product recall announced in November 2019. Volume was 12% lower, unit pricing was 2% lower, and unit cost was 5% higher than the prior year period. In our avocado category, net sales increased to $94,000,000 compared with $89,000,000 in the first quarter of twenty nineteen, primarily due to higher selling prices in North America as a result of lower industry supplies from Chile. Also contributing to the increase in net sales were higher sales volume and selling prices in Asia due to increased demand.

Partially offsetting this increase were lower sales volume in North America. Volume decreased 21%, pricing was 33 higher, and unit cost was 44% higher than the prior year period impacted by startup costs from our new processing facility in Uruapan, Mexico. In our vegetables category, net sales decreased to $39,000,000 compared with $42,000,000 in the first quarter of twenty nineteen, primarily due to lower sales volume and selling prices as a result of man packing and voluntary product recall and lower sales as a result of the COVID-nineteen pandemic. Volume decreased 6%. Unit price was in line with the prior year period.

And unit cost was 9 percent higher. In our non tropical category, which includes our grape, berry, apple, citrus, pear, peach, plum, nectarine, cherry, and kiwi product lines, net sales increased to $62,000,000 compared with $61,000,000 in the first quarter of twenty nineteen. Volume increased 9%, unit pricing decreased 7%, and unit cost was 8% lower. In our prepared food product line, which includes the company's prepared traditional products and meals and snacks product lines, net sales decreased primarily due to the impact of the COVID-nineteen pandemic, products rationalization in our man packing business and the continued impact of the 2019 voluntary product recall. The decrease in net sales was partially offset by higher net sales in the company's prepared traditional product line.

Gross profit was impacted by lower sales volume in our meals and snacks product line. In our banana business segment, net sales decreased $5,000,000 to $427,000,000 compared with $432,000,000 in the first quarter of twenty nineteen, primarily due to lower net sales in Asia, Europe, and North America, partially offset by higher net sales in The Middle East. Asia was impacted by lower sales volume and port closures in China related to the COVID-nineteen. Europe banana net sales decreased due to lower industry supply in the 2020 and the impact of COVID-nineteen in selling prices in March. As compared with our original expectations, the COVID-nineteen pandemic affected banana net sales by an estimated $6,000,000 during the quarter.

North America was also impacted by lower supplies from our Central America production area. Overall volume was 1% higher than last year's first quarter. Worldwide pricing decreased 2% over the prior year period. Total worldwide banana unit cost was 1% higher and gross profit decreased to $25,000,000 compared to $35,000,000 in the first quarter of twenty nineteen. Now moving to selected financial data.

Selling, general, administrative expenses during the quarter were $53,000,000 compared with $54,000,000 in the first quarter of twenty nineteen, mainly due to lower advertising and administrative expenses. We expect our recent actions to reduce selling, general and administrative expenses to have a positive impact beginning in the second quarter. The foreign currency impact at the gross profit level for the first quarter was unfavorable by $6,000,000 compared with an unfavorable effect of $3,000,000 in the first quarter of previous year. In the month of March, we entered in several fuel hedges that extend through the 2021 to take advantage of lower fuel prices to reduce the exposure of our shipping cost in The Americas and Asia. Similar to our foreign currency hedges, we have in place to reduce our exposure in different countries that we market our products.

These fuel hedges are intended to minimize our financial exposure to volatility in the market. Interest expense net for the first quarter was $5,000,000 compared with $7,000,000 in the 2019 due to lower debt levels and interest rates. Income tax expense was $300,000 during the quarter compared with the income tax expense of $9,000,000 in the prior year. The decrease in the provision for income taxes was primarily due to lower earnings in certain taxable jurisdictions. The tax provision for the 2020 also includes a $2,000,000 benefit related to net operating losses carryback provision allowed through the recently enacted Coronavirus Aid Relief and Economic Security Act, the CARES Act.

For the first three months of twenty twenty, our net cash provided by operating activities was $2,000,000 compared with the net cash used in operating activities of $7,000,000 in the same period of 2019. The increase in net cash provided by operating activities was primarily attributed to higher balances of accounts payable and accrued expenses partially offset by lower net income. Our total debt increased from $587,000,000 at the 2019 to $599,000,000 at the end of the first quarter of twenty twenty. As it relates to capital spending, we invested $17,000,000 on capital expenditures in the 2020 compared with $34,000,000 in the same period of 2019. As announced this morning in our financial results press release, our Board of Directors declared an interim cash dividend of $05 per share payable on 06/05/2020 to shareholders of record of 05/13/2020 reducing by $05 our interim cash dividend from $0.10 per share.

This concludes our financial review. We can now turn the call over for Q and A.

Speaker 0

Ladies and gentlemen, we apologize to all those who missed the first few minutes of this call. Your first question comes from the line of Jonathan Feeney from Consumer Edge. Your line is now open.

Speaker 4

Thank you very much and good morning. And thanks for all your efforts in this crisis. I think first question would be the shortages I would just from the could you tell us what your market share in North America and Europe did to the best of your guesses in bananas? Because the drastic increases in traffic we saw, I mean somebody seemed I think people were still buying bananas. It sounds like you were supply constrained.

Could you give us a sense how much the market grew as far as your estimation? And that would be my first question.

Speaker 2

Well, it's very difficult to say how much the market grew, Jonathan, in the first quarter because once we started we just started January and February, we started facing all these challenges in the market. And by almost February, there was like a rush to the retail and supermarkets, and we saw a spike in the banana sales and consumption. But that was for almost like ten days, two weeks, and then all of a sudden, there was a drop in buying and consumption. But on a normal basis, usually our market share is about 20% of the North American market. So in the bananas, we bring about 1,200,000, 1,200,000, 1,300,000 boxes a week into the North American market.

Speaker 3

Okay. Thank you. I'll follow-up on that.

Speaker 4

Ordinarily, you would expect we're turning to avocados and pineapples where you saw some pretty drastic increases in price on what seems to be some supply shortages, I'm guessing a global phenomenon because in pineapples volumes are down significantly. Has that pricing lasted into the second quarter? And would you expect that to help offset volume declines continue to help to offset volume declines? Or have those production shortages eased and more, say, flat pricing has taken hold?

Speaker 2

Yes. Well, actually, what happened with the pineapples in particular during the last, I would say, six weeks has been catastrophic because what we saw is that we were expecting to have the Easter period where pineapple sales usually climbed up drastically during that period. But unfortunately, with what is going on right now in the market, supermarkets, retailers didn't want even to promote pineapples. They didn't want even to put pineapples on their shelves because they said that this is not an essential item. And what we saw is that there was an avalanche of volumes coming into the market with not much buyers.

And that's the fact, and it has really impacted us during the first quarter and the first couple of weeks of this month, April. But as we speak today, we see now that the trend is moving back to normal. I mean consumption and buying of pineapples and pricing improving. But during this, I would say between pre Easter and throughout the end of this month, I mean the March, early April, the the the the pineapple market was in turmoil. It was not a shortage reality.

There was no shortage of pineapples. There was no market market for pineapples, and that's unfortunate. You know? And we noticed that mainly for pineapples. And not only in North America, but we saw the same trend in The Middle East, in Asia as well, and Europe that customers were pray you know, like priority for them, maybe it was bananas and other types of certain vegetables, you know.

And we have to consider also that with unemployment, the way it is going, be it in Europe, be it in North America, it really have impacted the consumers' purchasing power. And in my opinion, this will be a factor going forward, but I believe that we can overcome this with our operating integrated business and the way we are managing our business, Jonathan.

Speaker 4

Great. And last question, more of a financial one. Can you make any estimate as to on an adjusted basis, forgetting about the $8,000,000 write down of inventory, what impact in terms of gross or operating profit the $27,000,000 shortfall you enumerated to COVID-nineteen had on your company?

Speaker 3

Thank you for the question, Jonathan. It's really hard to precise. We were looking into that. So when you see the overall effect in gross profit year over year, as we talked about, we had an effect related to FX that was about $6,000,000 And but the difference there, there is a portion that's really related to pricing as we talked in explaining our results. Starting in Asia, we saw significant drop in prices because of the port closures in China.

So not because we have a strong presence in China, but other companies that had volumes going to China, they were diverted to Korea South Korea, Japan and Hong Kong, where we have the largest market share in the world. And so that really put pressure on prices there. And then secondly, what we saw is starting in Italy and impacting the other regions as well. Beginning in March, we started to see more fierce competition in both BANNAS as well as in volume. So I would say the majority, but it's hard to precise of that impact of the $27,000,000 net sales translated to the gross profit line.

Speaker 4

Thank you very much. That's all I have. Thanks again for your time.

Speaker 2

Thank you, Jonathan. Thank you, Jonathan.

Speaker 0

Your next question comes from the line of Mitch Pinheiro from Sturtevant. Your line is now open.

Speaker 2

Yes. Hey,

Speaker 5

good morning everybody. Hope everybody is well.

Speaker 2

Hi, Mitch.

Speaker 5

Hey, missed the beginning of the call. I was just curious, Mohamed, whether you spoke about, to the extent you can, sort of the outlook for the second quarter as it relates to all the disruption. I mean, back on track to any extent? Is there anything I mean, how should we approach, you know, putting our estimates together for the second quarter?

Speaker 2

I you know, I'm always honest and I'm very honest in saying that the first April was challenging. As we go now, I mean, April was challenging regarding pineapple and the the fresh vegetables as well because of the food service. You know, food service is a major, major consumer or major buyer of vegetables at fresh cut vegetables with the food service out of the picture mostly. And that has impacted our fresh vegetables in salinas, in non packing, as well as in slight way, the fresh cut fruit as well. But as we speak today, I see a much better markets going forward.

We see a lot of more normalcy in the market. We see the pineapple coming back to normal behavior. And we see a very promising signs even from the foodservice that the volumes and the demand is picking up. We can see this even during this week that things are changing. And I believe that we are in a very strong position, Mitch.

And let me be very clear on that. As far as we, Fresh Del Monte, we believe that we will come out out of this crisis stronger than before. Because for us, during this crisis, we have seen all the weak spots and all the, like you say, the the holes that we that clearly identify. And with what we are doing right now in Salinas, in particular, the consolidation of our operations, that will bring us hopefully by June, that will be totally done. But that will bring us about more or less $30,000,000 in savings just by doing that in our operation in Salinas.

And there is more to do that. We are moving consolidating our operations in Arizona, for instance. We are leaving one plant which has been leased to go to our own plant in in, outside Phoenix where we are going as well to make substantial savings there and better operations. We we have so many things going on in the next few months that will substantially strengthen our business. We you know, I don't want to mention everything on a conference call, but maybe through this team can give you more information later on and Eduardo.

But we have so many, you know, very positive things going on for the second half of the year, and I believe that there will be a lot of, hopefully, very nice surprises.

Speaker 3

And, mister Bogazari, if I may add, Mitch, a couple of additional comments. So, you know, we started in the month of, sorry, April, because Asia was the first market that was faced the impact of the coronavirus and was the first to come out. We're seeing, you know, in the month of April much stronger gross profit margins than what we saw a year ago. Either on bananas or some of our other products that we see, we're getting higher margins than what we saw last year. And another thing that is important, because at this time consumers also looked into stocking traditional prepared business, we saw a significant increase in our in demand for prepared traditional business that last year had a very minimum contribution to our bottom line, and it was almost breakeven.

While this year, we expect a very strong contribution between our branded, our private label business and our concentrates because all of those saw a significant increase in prices since the end of last year. And as we're expecting inventories to be deployed with the new production coming in from Kenya at much more favorable yields as compared to last year, that will drive reduced costs that we're going to see between Q2 and throughout the end of the year.

Speaker 5

Okay. Thank you. At this

Speaker 2

juncture,

Speaker 5

what does the banana market look like for you globally in terms of supply, the supply and demand picture?

Speaker 2

Today, as we speak, I think supply and demand are more or less in line, Mitch. I don't see shortage of bananas and I see the consumption and the demand are very much in line. Really, don't see big disruptions like we saw in pineapples or in vegetables or in the value added products. But banana has been steady and consistent. What I would like to comment as well, which I I I mentioned in my, you know, my my script is that we we just started actually ecommerce platform, and I would encourage you to go and look at it.

It's wwwmyfreshdelmonte.com, and I want you to see our new site. And it's we have just started about two weeks ago or less, and it's been fantastic start and the reception and the feedback has been extremely positive. And we see repeat orders and we see repeat you know, the customers are extremely highly positive because of the also the quality and the brand itself has been extremely favorable to this. And hopefully, this will also be rolled out in the next few months in North America as well.

Speaker 5

Okay. A couple other questions. By the way, just going back, one question regarding like the fresh veggie business, fresh fruit where you talked about challenging obviously the challenging environment for food service. What percentage how big is food service either within all of Fresh Del Monte or just in the veggie, the fresh cut veggie area, fresh cut fruit? Can you give us some sort

Speaker 3

of Yeah.

Speaker 2

I'll tell you as far as as far as our business with this fresh cut fruits and related other items that we produce ourselves, it's about 30% food service, about 70% other items. It's it's the reverse with the man vegetable business. It's usually about 70% food service and 50% retail. So the food service was mostly hit in demand vegetable business rather than in our own category, which is the fruits. But still, all in all, fruits and vegetables were impacted, you know, negatively during this last six, seven weeks since the food service almost came to a standstill.

And, you know, I mean, considering ourselves compared to the food service, I think we are very lucky. We should be, know, I mean, our business definitely have been impacted, but compared to people in the food service, you know, I feel very sad and very sorry for them, you know, the the way it's going.

Speaker 5

Just two more questions, quick questions.

Speaker 3

One correction, Mr. Bogazali, because I think in your numbers you included some other channels. Specifically on what we call food service, that represents about between 1520% of our overall sales, used 2019 as the basis, while for man packing specifically, that's about 45% to 50%. So a little bit less of that. So that's why, you know, January and February we saw a recovery from the previous recall, but then March is when we saw a huge impact because the food service suddenly shut down.

And so almost half of our demand went away from one day to the other. And so that caused a significant portion of the other charges that we mentioned, Mitch, on the on our adjustments regarding inventory was all by acres, so acres that we decided not to harvest. And that represented almost half of the $8,000,000 impact that we saw in Q1. Okay.

Speaker 5

Thank you. I have just two more quick questions. One, on the fresh cut veggie business and the recall. Is there any way to if you how much of the recall sort of was in the decline there? Is there any way to kind of gauge what business you didn't recover?

Speaker 3

So I would say, Mitch, a couple of things. So there are a couple of customers that they were concerned about the issues that we faced. But we assured them that with the new Gonzales plant up and running by the month of July, they are very confident to come back to have business with us. But also, we do believe that a lot of the cost and inefficiency that resides on man packing is going to go away because we are combining, just for you to have an idea, almost four different plants in one single facility. So it's going to drive, as the Chairman mentioned, about $13,000,000 in savings annually.

And we expect as we reach peak capacity there, that could be even higher than that because we're going to reduce logistic cost, rental cost that we have there as well as we're going to be able to because of automation, that's going to run much faster our operation there and be able to supply with a best customer service versus what we saw before. So all those things, I would say, will be in place starting in July. And I can tell the only struggle why we haven't been able to ramp up these faster is because of limitations on water usage imposed by the city of Gonzales that originally we had a commitment on their side for a certain volume, but that changed a little bit. And finally, we signed the documents in the recent weeks. And with that, we're 100% secure to get into the operations there.

Speaker 5

Thank you for that.

Speaker 2

And then last, just last thing

Speaker 5

on the avocado market. I was surprised, I mean, looking at the volumes in The United States, I didn't see volumes decline 21%. So your volume decline seemed a little larger. And also your pricing up 33% in the quarter was a little bit stronger than I would have anticipated. I kind of saw, you know, near double digit.

Can you talk about your avocado business a little bit?

Speaker 2

You know, the avocado business, Mitch, has been with us for so many years now. And we have been all the time buying through third parties. I mean, we never had a plant there. And everything that we used to buy, we used to buy from the market, from packers there that used to pack for us or even in the open market sometimes when we are short. However, since about two, three months back, we started our state of the art.

One of the it is literally the best plant in Mexico for avocado packing. There is nothing compared to it. And I can tell you it's one of our best plants in the world, really. When I saw it, I I was couldn't I believe it. Anyway, now we are packing almost everything in our plant.

So I think this will reflect also on our cost, our quality, and our service to our customers. So we are very confident, Mitch. Going forward, I think that our market share and our presence in the market will be very significant through the new kind of streamlining our business, avocado business North America, Europe and Asia. And it's not only this plan that we build there is not only for North America, but it serves Europe, it serves Asia, MENA and North America, of course, the biggest market. But, you know, we are very confident and very enthusiastic about the future for the avocados going forward really.

Speaker 5

But what happened in the quarter though? I mean, just I mean, volume was down 21%. Was that is it was any I didn't see that in terms of like supply changes into The U. S. Market.

I just thought we would see, you know, flattish kind of volume. And then with your plant, you know, unit costs were 44% higher. You know, I guess we'd see that come down with your packing plant efficiencies. But it just seemed like the quarter was sort of opposite of what I was looking for in the avocado line.

Speaker 2

But but yeah. But but don't forget that we have been with with the pandemic that we are going through, we we saw at the first week, ten days, once, you know, the the the government said that there will be a closure and lockdown on on people. And we saw this huge rush to the retailers, to the clubs, and people in line. And we saw a very big spike into avocados in the first, like, ten days. And then all of a sudden, because because of that, there was a lot of supplies coming into the market.

The pipeline was full. The cold storage was full, anticipating that will continue to go on. Unfortunately, like ten days later, two weeks later, all of a sudden, consumption and buying is just like in pineapples, not as bad as pineapples, but with avocados, we saw a very drastic drop into sales. And the the the stocks that were in in the pipeline or in the in the in the cold storage were really were impacted and suffered. We cannot put so much volume for so long in storage.

Speaker 3

And just to just to complement there, Mitch, as well, so we had a ramp up plan of our plant during this year. And so and of course, in the beginning, we had higher cost because of the startup of the plant that we are seeing right now. But a good example is in the month of April, in the last couple of weeks, we are working the plant at a very high utilization capacity, preparing for the Cinco de Mayo. So it's interesting that, you know, while we're talking about pineapples that we saw demand during the month of March and suddenly went down because I think there was a frustration on expectations of Easter. We're seeing now the opposite.

So we're seeing an uptake on the avocado volume preparing for Cinco de Mayo. And so we are running our plant 20 fourseven with a very strong efficiencies there. And we believe that some of the challenges we faced in Q1 in terms of the sourcing and achieving our regional volumes, I think they were adjusted and corrected for the second quarter.

Speaker 2

I would like to add to this, Mitch, that we are not only packing in in in Mexico, but we do have our packing plant as well in Los Angeles. I mean, are packing as well the California avocados. So we have two sources right now. It's California avocados as well as Mexico. And that's for our markets.

Speaker 5

Okay. Thank you. Thanks for taking the questions.

Speaker 2

Pleasure.

Speaker 0

There are no further questions at this time. I will turn the call back over to Mr. Abu Ghisaleh.

Speaker 2

Thank you. Thank you very much and I appreciate having you on joining this virtual call, which is the first time that I have done that, but it went very nicely. And I can assure you that we are very confident about our immediate future as well as the long term future. And I hope to talk to you in person from our offices on our next conference call. Best of luck and stay safe.

Thank you. Good day. Bye.

Speaker 0

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.