Fresh Del Monte Produce - Earnings Call - Q1 2025

Executive Summary

• Q1 2025 delivered mixed headline results: net sales $1.10B down 0.9% YoY, gross profit up 12% to $92.2M and gross margin expanded 100 bps to 8.4% driven by Fresh & Value-Added; GAAP diluted EPS $0.64 and adjusted diluted EPS $0.63.
• Versus S&P Global consensus, EPS slightly beat ($0.63 vs $0.615*) while revenue missed ($1,098.4M vs $1,118.5M*); strength in pineapples, fresh-cut fruit, and avocados offset banana weakness and FX headwinds.
• Management reaffirmed segment margin targets and SG&A/CapEx ranges but lowered FY 2025 operating cash flow guidance to $180–$190M from $190–$200M previously, citing evolving tariff/macro conditions; dividend maintained at $0.30 and $7.6M of buybacks executed.
• Near-term stock reaction catalysts: narrative of demand exceeding supply in core categories (pineapple, avocados, fresh-cut), execution on Mann Packing consolidation savings, and clarity on tariff pass-through; watch for banana segment recovery and FX impacts.

What Went Well and What Went Wrong

What Went Well

• Fresh & Value-Added margin expansion: segment gross margin rose to 10.1% (from 8.3% YoY); management reiterated a path to low-teens margins over time as mix improves.
• Operational resilience amid shipping constraints: “we have been able to move products with minimal to no delays” due to vertically integrated logistics; demand continues to exceed supply in pineapples and fresh-cut.
• Strategic progress in avocados/specialty ingredients: majority stake in Avolio to convert non-whole-grade fruit into premium avocado oil, scaling to 140 MT/day, targeting a fast-growing, higher-margin market.

What Went Wrong

• Banana segment pressure: net sales down to $363.8M (YoY: $379.5M), gross margin compressed to 4.6% (from 5.7%) on lower Asia demand, excess supply, weather logistics in North America, and weaker EUR/KRW.
• FX headwinds and reduced gains: Other expense fell vs. prior year, but lower gain on asset disposal constrained operating income growth (adjusted OI up more meaningfully).
• Guidance sensitivity to tariffs: FY 2025 operating cash flow range lowered to $180–$190M, with CFO highlighting evolving tariff/geopolitical environment as a monitoring area.

Transcript

Operator (participant)

Good day everyone and welcome to Fresh Del Monte Produce's First Quarter 2025 Earnings Conference Call. Today's conference call is being broadcast live over the Internet and is also being recorded for playback purposes. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during that time, simply press star then the number one on your telephone keypad. To withdraw your question, press star one again. For opening remarks and introductions, I would like to turn today's call over to the Vice President of Investor Relations with Fresh Del Monte Produce, Miss Christine Cannella. Please go ahead, Miss Cannella.

Christine Cannella (VP of Investor Relations)

Thank you. Regina. Good afternoon everyone and thank you for joining our First 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 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 material 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, again including the answers we give in response to your question, 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 April 30 and we have no obligation to update any forward looking statement we may make. During the call we will provide a business update along with an overview of our first 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 thanks everybody on this call for joining us. For our first quarter of 2025, we began the year with continued momentum, building on the progress we made throughout 2024. Our results this quarter reflect a strong start driven by solid demand in key categories, a more optimized product mix, and continued focus on operational efficiency. We saw meaningful year-over-year improvements in both gross profit and gross margin, particularly within our fresh and value-added segment, affirming the effectiveness of our strategy and discipline behind its execution. Pineapples continue to perform well with demand once again exceeding supply, a clear reflection of our leadership in this cornerstone category. Leveraging that leadership, we are closely tracking global production conditions and actively managing the ongoing imbalance between supply and demand.

As consumption continues to grow across markets, we have taken strategic steps to strengthen supply continuity and secure consistent availability for our customers, allowing us to stay ahead of the curve and better anticipate future demand. At the same time, we continue to see strong consumer interest in avocados and fresh cut fruit, two categories that are central to our long term growth strategy. These products play an increasingly important role in how consumers engage with fresh produce and they are a critical part of our expansion plans, which we look forward to sharing in more detail in the months ahead. This quarter further demonstrated the operational resilience provided by our vertically integrated supply chain, particularly amid persistent global shipping disruptions marked by container equipment scarcity, constrained vessel capacity and escalating port congestions.

To date, we have been able to move products with minimal to no delays, giving our customers a level of service continuity that few can match. On the topic of agility, it is important to address the current conversation around tariffs. The situation is evolving quickly and we are monitoring it closely. As of now, none of our major growing countries have been hit with additional tariffs beyond the existing 10% baseline. I would like to highlight a key strategic move from this past quarter. In March, we announced our acquisition of a majority stake in Avolo, one of Uganda's leading avocado oil producers. This is more than a supply chain investment, it is a clear example of our strategy in action. We believe that this investment will allow us to take avocados that may not meet fresh market standards and convert them into premium avocado oil.

That means less waste, more value, and a stronger foothold in a fast growing higher margin category. This investment ties directly to our vision for 2025 through 2027, maximizing fruit residues, creating value added solutions, and advancing sustainability across every part of our business. Now that we have closed out a strong first quarter, I think this is a good moment to share how we are thinking about the future and what we see as our North Star.

As we look ahead through 2027. Our vision is to lead the industry in fresh and value added products, anchored in our commitment to quality, innovation, and sustainability. It is about doing more with what we grow, turning waste into opportunity, and making sure every resource is used with purpose. Our mission is to deliver products our customers can trust through ethical farming, advanced operations, and sustainable practices. At the core of it all is our strength in Pineapple, which continues to set the standard for everything we do. To bring this vision to life, we have focused on five key positions: innovating and diversifying our product portfolio, using resources more efficiently and reducing waste, driving operational excellence through automation and integration, expanding globally while reducing reliance on any one market, and investing in our people and building lasting trust. That is the future we are building towards.

Focused, purpose driven and designed to create long term value for everyone we serve, from our customers, consumers and business partners to our shareholders and the environment we all depend on. With that, I will turn over to Monica to discuss our first quarter 2025 results in detail.

Monica Vicente (SVP and CFO)

Thank you, thank you, Mr. Abu-Ghazaleh, and good morning everyone, and thank you for joining us on today's call. I will begin with our financial results for the first quarter of 2025, and then I will share our outlook for the remainder of the year. As Christine mentioned, 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. Now, let's move on to our financial results for the first quarter of 2025. Net sales were $1,098,000,000 compared with $1,108,000,000 in the prior year.

The decrease was driven by lower net sales in our banana segment, primarily a result of lower sales volume and the negative impact of fluctuations in exchange rates, partially offset by higher net sales in our fresh and value added product segment, driven by higher per unit selling prices. Gross profit for the first quarter of 2025 was $92 million compared with $82 million in the prior year. The increase in gross profit for the quarter was driven by higher net sales in our fresh and value added product segment, partially offset by higher per unit production, procurement and distribution costs. Gross margin for the first quarter was 8.4% compared with 7.4% in the prior year. This also reflects a sequential increase from 6.8% in the fourth quarter of 2024. Adjusted gross profit for the first quarter was $92 million compared with $81 million last year.

Operating income for the first quarter of 2025 was $45 million compared with $44 million last year. The increase in operating income was driven by higher gross profit, partially offset by lower gain on disposal of property, plant and equipment. Net adjusted operating income was $44 million compared with $31 million in the prior year. Other expense net for the first quarter was $3 million compared with $8 million in the prior year. The decrease was primarily due to lower foreign currency losses. Net income attributable to Fresh Del Monte Produce for the first quarter of 2025 was $31 million compared with $26 million in the prior year and adjusted FDP net income was $30 million compared with $16 million last year. Our diluted EPS for the first quarter was $0.64 per share compared with $0.55 in the prior year.

Adjusted diluted EPS was $0.63 compared with $0.34 per share last year. Adjusted EBITDA for the first quarter of 2025 was $61 million or 6% of net sales compared with $44 million or 4% in the prior year. I will now go into more detail on our first quarter 2025 performance for each of our segments beginning with our fresh and value added product segment. Net sales for the first quarter of 2025 were $683 million compared with $677 million in the prior year. The increase in net sales was primarily a result of higher per unit selling prices in our avocado product line and higher sales volume and per unit selling prices in our fresh cut fruit product line in North America due to strong market demand.

The increase was partially offset by lower net sales in our fresh cut vegetable and vegetable product lines due to our strategic operational reductions in the fourth quarter of 2024, which also included the sale of certain assets of Fresh Leaf Farms. Gross profit was $69 million compared with $56 million in the prior year. The increase in gross profit was primarily driven by higher per unit selling prices in our pineapple and melon product lines, partially offset by higher per unit production, procurement, and distribution costs. Gross margin increased to 10.1% in the first quarter compared with 8.3% in the prior year. This also reflects an improvement from 7.5% in the fourth quarter of 2024 and 9.3% for the full year 2024.

We're making solid progress toward our goal of delivering double-digit gross margins in the low teens for this segment as we continue to improve our product mix. Moving to our banana segment, net sales were $364 million compared with $380 million in the prior year. The decrease in net sales was primarily a result of lower sales volume and per unit selling prices in Asia due to a combination of lower market demand and excess industry supply along with lower sales volume in North America due to lower industry supply and weather-related logistic disruptions. Additionally, net sales were negatively impacted by fluctuations in exchange rates due to a weaker Euro and Korean Won. The decrease was partially offset by higher per unit selling prices in North America. Gross profit was $17 million compared with $22 million in the prior year.

The decrease in gross profit was driven by lower net sales and higher per unit production and procurement costs. Gross margin decreased to 4.6% compared to 5.7% in the prior year. Lastly, our other products and services segment net sales were $51 million in line with the prior year. Gross profit was $6 million compared with $5 million last year. The increase in gross profit was primarily due to higher per unit selling prices in our poultry and meats business. Gross margin increased to 11.9% compared with 8.9% last year. Now moving to selected financial results for the first quarter of 2025, our income tax provision was $7 million compared with $5 million in the same period last year. The increase in income tax was primarily due to increased earnings in certain higher tax jurisdictions. Our effective tax rate for the first quarter was 18%.

Net cash provided by operating activities for the first quarter of 2025 was $46 million compared with $19 million in the prior year. The increase in net cash provided by operating activities was primarily due to working capital fluctuations, mainly driven by higher levels of accounts payable and accrued expenses, lower levels of accounts receivable and higher net income. The increase was partially offset by higher levels of inventory when compared to the prior year period. We ended the first quarter of 2025 with $233 million of long term debt, an $11 million or 5% reduction from $244 million at fiscal year end 2024 and also a decrease of 42% compared with the prior year period. Our adjusted leverage ratio is less than 1 times EBITDA. Our CapEx investment for the first 3 months of 2025 was $10 million compared with $13 million in the prior year.

As announced in our press release, we declared a quarterly cash dividend of $0.30 per share payable on June 6, 2025 to shareholders of record on May 14, 2025. On an annualized basis, this equates to $1.20 per share, representing a dividend yield of 3.5% based on our current share price. Also, during the first quarter of 2025, we repurchased $7.6 million or 254,000 shares of our common stock at an average price of $29.97 as part of our $150 million share repurchase program. These actions reflect our commitment to a strong sustainable dividend and a balanced capital allocation strategy that includes opportunistic share repurchases.

As we look ahead, excluding the impact of tariffs and recent macroeconomic developments, we continue to expect full year 2025 results to be in line with the outlook we shared during our year end earnings call in February, which reflects our confidence in our strategic initiatives and current visibility into our business. That said, we continue to closely monitor developments related to the evolving tariff situation or other geopolitical developments that remain fluid at this time. We reiterate our expectations for the full year of 2025. We expect to see net sales grow 2% year over year. As far as gross margins by business segment, in our fresh and value added segment, gross margin is expected to be in the range of 10-11%. In our banana segment, gross margin is expected to be in the historical range of 5-7%.

For our other products and services segment, gross margin is expected to be in the range of 12-14%. As far as our selling, general and administrative expenses, we expect that to be in the range of $205-$210 million. Our projected CapEx are expected to be in the range of $80-$90 million. We expect net cash provided by operating activities to be in the range of $180-$190 million. We recognize that the current environment marked by tariffs, global tensions and possible logistical uncertainties continues to evolve. We have weathered external disruptions before and our diversified sourcing strategy is designed for resilience. Our product mix remains in demand and we're focused on long term value creation. The fundamentals of our business have not changed. This concludes our financial review. We can now turn the call over to Regina.

Operator (participant)

We will now begin the question and answer session. Our first question will come from the line of Mitch Pinheiro with Sturdivant and Company. Please go ahead.

Mitch Pinheiro (SVP and Director of Research)

Yeah, hi, good morning. Can you hear me?

Mohammad Abu-Ghazaleh (Chairman and CEO)

Good morning, Mitch. Yes, we can hear you.

Good morning.

Mitch Pinheiro (SVP and Director of Research)

Great. Good morning. So. Mohammad, I was wondering if you. Could talk a little bit about the produce category, you know, and your categories within that, what you're seeing in terms of demand. We, you know, we've obviously the consumers under pressure. What are you seeing in your categories relative to that and what do you expect here in the, you know, the next quarter or so?

Mohammad Abu-Ghazaleh (Chairman and CEO)

What we see is a very continuous solid demand in our sector, which is the fresh produce, the fruits or vegetables. We do not see any kind of reductions in demand or consumption. I believe this will continue as we are very kind of basic, reasonably priced segment in terms of cost. I am confident that this is not going to change. As a matter of fact, disruptions that are happening right now in the market sometimes open opportunities for us, which, you know, we are looking at and maybe a good time for probably, you know, picking up some good opportunities there.

Mitch Pinheiro (SVP and Director of Research)

I mean, it is interesting. What are you, are you seeing significant. Players, you know, in the industry having. You know, sort of logistic issues that. You're going to take advantage of? Or is it, you know, more broadly just some of the players, you know, sort of more broadly having issues?

Mohammad Abu-Ghazaleh (Chairman and CEO)

You definitely nailed it, Mitch. Actually, you know, with this kind of environment that we are going through, the disruptions, be it on the logistics side on all fronts, really have put, you know, I would say put small, medium sized companies or operators at a disadvantage because of the hardships that is being created by these disruptions. In our case, yes, we are very flexible, we're very, very agile. We can adapt to the situation. Our logistical, you know, full integration from the supply chain gives us a very big leverage in terms of being able to move forward without any disruptions or interruptions in our operations.

The most important thing is that your, you know, your customers' demands or your customer requirements are fulfilled on time without any interruptions. That is really the big element here in this situation, between somebody that can deliver, you know, on time and in full and someone that cannot do that. You are right, what you just mentioned is very true.

Mitch Pinheiro (SVP and Director of Research)

Let me ask, with regard to the 10% baseline tariffs, what's happening in the market? Are we seeing? You know, producers such as yourself and retailers passing it through to the consumer? Are we, is there any part of the sales processes seeing any particular. Group. Eating some of the tariffs to keep prices low, or are you gonna pass it all through?

Mohammad Abu-Ghazaleh (Chairman and CEO)

We have been mitigating this in a very friendly and cooperative way with our buyers, you know, and in order not really to negatively impact the consumers in a way. We are working very closely with our buyers to mitigate this tariff increase, which I believe for the good of buyers and sellers as well. Yes, we are mitigating this with our buyers.

Mitch Pinheiro (SVP and Director of Research)

Okay. You mentioned in. The prepared remarks or on the slides that part of the margin driver in fresh and value added was pineapple, I guess, in melons. I was curious how you were doing in avocado.

Mohammad Abu-Ghazaleh (Chairman and CEO)

Avocado is doing very well, as Christine mentioned, you know, and this category is growing and we are diversifying as well. Our sourcing from Peru, from Colombia and other places. I believe that this segment of the business is to keep growing going forward. It's not only pineapple and avocados and fresh cut. We do have other items right now. They are maybe small, not to mention them, you know, any significant manner, but they are starting to be becoming very important also part of our portfolio. I mean, you know, on the logistics side, this is one side on all new businesses that we are just in the infancy stage, you know, on the residues on other. As we go forward, you know, quarter after quarter and year after year, this will be very meaningful going forward.

We cannot just say right now what we are doing. Everything that will happen in the next few quarters will be announced and will be kind of highlighted to the market. There are many things in the pipeline that is already started probably in one way or the other, start ramping up. Some of it probably a little, you know, like on the biofertilizers, like even on conventional fertilizers that we started, you know, working on production and distribution. We are talking here about, you know, margins in the high 20% and things like that. These businesses, as they grow and they are growing, will have significant and very impactful, you know, results going forward in the future.

Mitch Pinheiro (SVP and Director of Research)

Are we at point in fresh cut where, you know, you've absorbed a lot of the, the newer capacity you added and that we should see more stable and increasing sort of margins as you leverage those fixed costs here? Are we at that point where you're beyond, you know, even some volume disruptions, that you can still maintain pretty strong margins in that area?

Mohammad Abu-Ghazaleh (Chairman and CEO)

Yeah, I think we do. I believe that our fresh cut fruit operation is getting stronger year after year, you know, and with our rationalization and increased efficiency and better sourcing, that gives us a leverage to continue performing similarly or even better going forward in the future, Mitch. I am not very concerned about the fresh cut. I think just to give you an example, with our fresh guacamole, which we started, let's say less than a year ago, we are having double digit growth quarter over quarter, you know, I mean, we cannot cope even with demand.

Mitch Pinheiro (SVP and Director of Research)

The last question was on the pineapple business. Obviously it's your core business and what drives everything at your firm, at your company, but why could you just go back? You know, obviously pineapples have been in sort of short supply for a little bit, but what was driving that and how long does it take for supplies to normalize from this point?

Mohammad Abu-Ghazaleh (Chairman and CEO)

Let's put it in another way, maybe consumption is increasing and demand is increasing. That's why we see now more, more or less the supply is a little bit shorter than the demand. I mean, I'm not saying, you know, drastically shorter, but little bit shorter than demand. I think the major factor here is that the demand and consumption is increasing. If you look at the price of pineapples compared to any other fruit on the shelf, be it apple, be it grapes, be it berries or any other fruit, you will realize that the cost of pineapple compared to the rest is quite favorable. It's very still inexpensive to.

I mean, as a family, as a household, I would take a pineapple that can feed the whole family, you know, maybe for two days, rather than having $2 of apples or oranges that would cost me three times as much. I believe, you know, I mean, this is one of the factors why we see more consumption of pineapple, aside from the young generation realizing that the health benefits of pineapple as well is extremely high compared to other fruits. I think there are several factors playing here. One is the price compared to others as well as all the health and wellness benefits coming from pineapple rather than other foods.

Mitch Pinheiro (SVP and Director of Research)

I also think your Honeyglow is a fantastic pineapple variety. I think that in and of itself, getting that kind of quality of pineapple would also induce demand, you know, continued purchasing of that, of that product. Absolutely kudos to you. Yeah, kudos to you for the innovation in that and your other, your other Pinkglow and Rubyglow and other innovations. That's all I have here. Thank you for your time and the answers.

Mohammad Abu-Ghazaleh (Chairman and CEO)

Thank you, Mitch. I appreciate it. Thank you very much.

Operator (participant)

Again, for any questions, simply press star 1 on your telephone keypad. That will conclude our question and answer session. I will now hand the call back over to Mr. Mohammad Abu-Ghazaleh for closing remarks.

Mohammad Abu-Ghazaleh (Chairman and CEO)

Thank you so much. I would like to thank everyone today for having the to be with us here and hope to talk to you. Better news on our next quarter. Thank you. Have a good day.

Operator (participant)

Ladies and gentlemen, that will conclude today's meeting. Thank you all for joining. You may now disconnect.