Dole PLC

NYSE:DOLE

Earnings Call Transcript 2023-Q1

[Operator]

Welcome to the Dole plc First Quarter 2023 Earnings Conference Call and Webcast. Today’s conference is being broadcast live over the Internet and is also being recorded for playback purposes. At this time, all participants are in listen-only mode. After the speakers’ 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.

[James O’Regan, Head of IR]

Thank you Rob. Welcome everybody. And thank you for taking the time to join us on our first quarter 2023 earnings conference call. 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 supplemental remarks, and these along with 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 federal securities Safe Harbor law. These reflect circumstances of time they’re 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 include the reconciliation to the most comparable GAAP measures. Following the agreement to sell the fresh vegetables division its results are reported separately in our financial statements as discontinued operations. Unless otherwise noted, our discussion of our results and outlook in today’s presentation are on a continuing operations basis.

With that, I’m pleased to turn today’s call over to Rory.

[Rory Byrne, CEO]

Thank you James and a very warm welcome to everybody and thank you all for joining us. So today, we are very very pleased to report a strong start to the 2023 financial year. All the focus of our remarks today will be on a continuing operations. We are also pleased to note that the fresh vegetables division has shown an improved performance so far in 2023 as we work our way through the regulatory process for the planned sale of this business to Fresh Express.

Now turning to slide six and the financial highlights for the quarter. While we delivered revenue and adjusted EBITDA growth driven by strong performances in our Fresh food and diversified Fresh Produce EMEA segments. Group revenue increased by 1% on the like-for-like basis excluding the impact of foreign currency translation movements and M&A it increased by just under 4%. These increases continue to be driven by higher pricing. Adjusted EBITDA increased by 9.3% to $100 million while adjusted diluted earnings per share decreased primarily due to higher year-over-year interest expense.

Moving onto our operational highlights. In our Fresh Food segment we delivered a very strong results in Q1 driven by an improved performance in our European operations. 2022 was challenging year in Europe but we could not quickly pass on the significant cost increases in shipping, fuel and sourcing costs to customers in part due to the instability in the market place following the start of the Ukraine war. While there remains a challenged push through to further price increases to offset some of the inflationary pressures we have faced, we are pleased to see results moving in a good direction in Q1.

Our North American operations performed solidly [Ph] with a healthy supply and demand balance and bananas aligned for continued good performance. As always, supply and demand dynamics in the banana market remain an important variable for the year ahead. Overall we believe the industry remains in a good balance as we head into Q2 on much a diverse sourcing base we believe we are well positioned.

Our Diversified First Produce EMA segment has had a very strong start to 2023. Inflationary, justifying price increases flown through from our dynamic pricing model have allowed for good revenue growth across our markets. Certain markets’ volumes have been more challenging, while overall our businesses have performed well through prudent cost management and the continued expansion into growth products and markets.

On an underlying local currency basis we are very pleased with the performance of this segment and now the more favorable FX compares its start in Q2 we hope to see an improved performance on a reported U.S. dollar basis also.

Our Diversified Fresh Produce - Americas and Rest of World segment has had a relatively slow start to the year [Indiscernible] timing differences of the important Chilean cherry season this year and also due to the implementation of the more conservative strategy for the export of certain products following supply chain challenges in 2022. We also experienced some disruption as a result of the fire in one of our Chilean operations during the quarter although this did not have a material impact in operations and the damage entire was covered by insurance.

Despite these impacts scale and range of activity in this segment still allowed us to maintain a solid level of performance overall in Q1. We continued to perform well in a number of our key products group such as Chilean cherries and potatoes in North America and additionally began a number of important strategic initiatives to further accelerate growth in these products as we move forward.

Looking ahead to the rest of the year we are confident that the strategy we’ve taken was the revenue results particularly in the second half. Before I turn it over to Jacinta, I also want to say a quick word on the ransom ware attack we mentioned on our last call. Our efforts to quickly contain the threat and secure our systems resulted in a limited overall impact on group operations.

Our continued operations incurred approximately $4.8 million of costs relating to the incident and the fresh vegetable business incurred approximately $5.7 million of costs. Despite the complexity and costs of this issue, we are very pleased with the commitment of our people in ensuring that our systems recovery protocols worked as anticipated.

And with that, I’ll hand you over to Jacinta to give the financial review.

[Jacinta Devine, CFO & Director]

Thank you, Rory. Good morning and good afternoon, everyone. Firstly, turning to the group results on slide 10. As noted by James and Rory earlier, the results of the fresh vegetable segment are reported separately as discontinued operations in our financial statement, and the focus of our discussion is therefore on the results of continuing operations. We delivered a strong result in the first quarter, with revenue increasing $19 million or 1%. However, on a like-for-like basis, revenue increased $73 million or nearly 4%, driven by higher pricing.

Adjusted EBITDA increased $8.5 million or 9.3% to $100 million, with the increase driven by a strong performance in fresh fruit and diversified fresh produce EMEA, offset by a decrease in diversified fresh produce in America and the rest of the world.

On a like-for-like basis, adjusted EBITDA increased 9.9%. Adjusted net income was $32.3 million, and adjusted diluted EPS was $0.34 in the quarter, compared to $40.5 million and $0.43 in the prior year. The decrease was predominantly due to a $10 million increase in interest expense.

Now, looking at each of the segments in more detail and turning to slide 12 for fresh fruit. The fresh fruit segment delivered strong results in the quarter. Revenue increased 6.5%, primarily driven by higher worldwide pricing of bananas and pineapples. Volumes of bananas sold increased on a worldwide basis, whereas pineapple volumes were lower.

Adjusted EBITDA increased 14.6% compared to the first quarter of 2022, driven by revenue growth, which offsets higher sourcing costs and higher costs of shipping, packaging, and handling.

Now turning to Diversified Fresh Produce EMEA on slide 13, this division performed strongly in the quarter, with revenue increasing 1%, driven by higher pricing. On a like-for-like basis, revenue increased 7%. Adjusted EBITDA increased over 21% to $23.4 million, and on a like-for-like basis, the increase was 26%. There was a strong performance across the segment, with the U.K. performing well and an improved performance in South Africa.

Finally, turning to Diversified Fresh Produce, Americas and rest of the world on slide 14, primarily due to timing for the Chilean cherry season as well as lower volumes of berries and grapes distribution experienced a decrease in revenue of 8.8% partially offsetting these factors was a continued strong performance for potatoes and onions in North America. The challenging quarter for berries and grapes was the primary driver of the adjusted EBITDA decrease of 36%.

Now turning to slide 15 and reflecting on capital allocation and leverage. Capital allocation continues to be a key focus of the group, especially as interest rates continue to rise. To manage this headwind, we are focused on being strategic with the investments we make, efficiently managing our working capital and on identifying opportunities to dispose of non-core assets.

In that regard, we are pleased that as of 31st March, we have received proceeds from non-core asset sales of 6.5 million and post the end of the quarter, we received a further 6.7 million from the sale of two vessels.

We expect to deliver further asset sales as the year progresses and as of 31st March, we had 40 million of assets held for sale and actively marketed properly on our balance sheet. Capital expenditure for the first quarter was $20 million with investments in farm renovations as well as IT, logistics and efficiency projects in our warehouses and processing facilities.

For 2023, we continue to expect CapEx to be circa $120 million. We are pleased that our leverage at the end of the quarter came out at 2.8 times below our targeted level of 3 times, driven by strong adjusted EBITDA performance and an efficient management of working capital across the group.

Interest expense has increased approximately $10 million to $21 million, following the rise in rates over the past 12 months. For the full year, we are retaining our forecast of [Technical difficulty]. Finally, we are pleased to see a dividend of $0.08 for the first quarter, continuing our commitment to return cash to shareholders.

Now I will hand you back to Rory, who will give an update on our full year outlook and closing remarks.

[Rory Byrne, CEO]

Thanks Jacinta. While the operating environment so far in 2023 continues to bring with it both new opportunities and some new challenges. As we noted in our last update, so far in 2023, we do see signs of improved logistical efficiencies in several areas, which is helping to bring more stability to the sector after a long period of severe supply chain disruptions.

We’ve also seen some unusual weather events, and as we progress through the second quarter, we are closely monitoring the impact of unprecedented rains in California, which continue to impact the vegetables and berry crops in that region.

Lastly, looking at the macroeconomic environment, we do continue to see positives for our business with a strengthening euro, more stable fuel prices, and continued signs of inflation moderating in certain areas.

However, we are also seeing headwinds, with interest rates remaining high and unusual currency movements, particularly with the Costa Rican column being unhelpful to our cost base. That said, overall, we believe our strong first quarter has put us in an excellent position to deliver on our full year financial targets.

Our business is well positioned for growth, and while the environment we operate in remains dynamic, we do continue to expect to deliver adjusted EBITDA from continuing operations of $350 million for the full year of 2023.

In conclusion, we are very pleased not only with the strong start we have made financially to 2023, but with the progress we are making on the wider strategic priorities we outlined earlier in the year.

To recap, our principal strategic priorities for 2023 are completing the sale of the Fresh Vegetable business, focusing on cost control and operating efficiencies across our businesses, including the on-going Synergy projects, continuing with a disciplined approach to capital, and accelerating growth in our core business. I want to finish by thanking again all of our dedicated and committed people for their on-going efforts to drive Dole PLC forward, as well as our suppliers and customers for their on-going support, which provides us with confidence as we look out towards the remainder of the year.

So with that, I’ll hand it back to the operator and we can open the line for questions.

[Operator]

[Operator Instructions] Your first question comes from a line of Chris Barnes from Deutsche Bank. Your line is open.

[Chris Barnes, Deutsche Bank]

Hi. Good afternoon, guys. I guess the first question that was just around the EBITDA guidance for the year. I mean, 1Q was a lot better than we on the street expected, but you only reaffirmed the year. I appreciate the challenges that you’re having with the California weather and just uncertainty in the macro, but can you maybe just elaborate on the decision to reiterate? Is this just prudence on your part, or are you expecting something specific to unwind some of the strength, particularly as we move into the second half when comparisons get tougher and macro conditions are at least expected to deteriorate? Thanks.

[Rory Byrne, CEO]

Yes. Thanks, Chris, for the question. Yes I mean, we’re comfortable with the 350, and it seems it’s still relatively early in the year. Last year, as you know, we had very, very strong Q4 in particular, and forecasting the current world that we live in is quite, quite complex. We’ve got some very big macro issues still on-going, whether it’s the war, whether it’s the debt ceiling in the U.S. are very obvious factors.

So we just felt, while we have a strong Q1 and we’re very happy with it, we are comfortable with the 350, but we didn’t think the timing was right to in any way change the guidance for the year. There are some headwinds out there. We’ve highlighted a couple of them. Obviously, the weather has been a serious issue with the worst rains I think in a hundred years in California. The Costa Rica and Colombo source pretty much all of our pineapples has appreciated very significantly. But I think, what history has shown, we’ve been able to manage our way through those challenges. So that really is the overall position we’ve taken on guidance and sticking with the 350.

[Chris Barnes, Deutsche Bank]

Understood. That’s helpful. And then just to follow up, it looks like you’re absorbing about $11 million of overhead costs with the restatement of like the segment EBITDA, just as you discontinue fresh vegetables. So to what degree do you expect to work these costs down, whether this year or over time? And I guess, is there any timing associated with when you expect to extract some of that stranded overhead? Or is it really just part of the base going forward? Thanks.

[Rory Byrne, CEO]

No, I think, Chris, it’s fair to say that our objective would be to reduce the head office cost allocation when we sell that division, when we sell the division. It’s an on-going process. We’ve got a, over the last year or so, we’ve had a lot of costs associated with adapting to the requirements of the SEC, SOX costs, and some of those issues are quite expensive until you get them fully embedded into your systems. And we’ve made great progress on that.

So we have a specific team looking at our total head office costs. It’s always been an on-going process, and we’ve got particular focus on that, and planning for the future years to have a right-sized head office cost.

[Chris Barnes, Deutsche Bank]

Thanks very much. I’ll pass it on.

[Operator]

And your next question comes from a line of Ben Bienvenu from Stephens. Your line is open.

[Ben Bienvenu, Stephens]

Hey, thanks. Good morning, everybody. Congratulations. I want to start following up with the comments that you made just on rains in California. Kind of what are the near-term impacts of what you’ve seen there, and then kind of what’s the follow-through effect that you see as we move through the rest of this year?

[Rory Byrne, CEO]

Johan, you want to make a comment on that?

[Johan Linden, COO & Director]

Yes. So, we had two incidents of rain in California. The first one was not too bad, but the last one that came about really took some of the crop out. So, what has happened is that now, where we are right now, we have seen some scarcity, and therefore we’ve seen higher pricing, and that’s one of the reasons also why we have a good Q1. We’re also starting off okay with vegetables, but what we see, because of the rains and because of how that impacted the planting, we see a lot more volume coming towards the end of Q2. So, we do see an oversupply in the market towards Q2. That’s the direct impact. And some higher vegetables right now for our value-added business because of scarcity.

[Rory Byrne, CEO]

And then on-going operations, probably on the berry side, the business has been quite significantly disrupted as well. But in the overall scheme of things, not a hugely material number for us.

[Ben Bienvenu, Stephens]

Okay. Okay. Very good. And then thinking about the rest of the year, once you complete the sale of fresh vegetables, the balance sheet’s in a great position. Can you talk a little bit about your desire to grow again inorganically from an M&A standpoint? And with rates having risen, how has that impacted multiples of potential targets that you might pursue?

[Rory Byrne, CEO]

Yes. I mean, obviously, the last year or two have been periods of consolidation. And such a dynamic environment we have been really focused on making sure we adapt to all the cost changes on our adopter business. But at the same time, we've been keeping a close eye and what's happening in our world. We have our own internal corporate finance department. We do watch all the transactions that are taking place, the players that are being bought and sold and the companies that are interesting for us.

So I think it'll take a time about moving forward on those. And there are some interesting opportunities out there. We continue to keep our eye on so far, despite interest rates going up, we haven't seen pricing coming down. I think I've mentioned that before, it does seem to something of a disconnect still between the private markets and the public markets in terms of valuation. So I hope that's a question for us. And then I think over time, they will -- But it's -- our plan is to continue to grow over the medium and long term. So a good track record of adding in the right M&A transactions. And over the medium term, we believe we will continue to do that.

[Ben Bienvenu, Stephens]

Okay. Thanks very much.

[Operator]

And your next question comes from the line of Adam Samuelson from Goldman Sachs. Your line is open.

[Unidentified Analyst]

Good morning, everybody. This is actually Guillermo [Ph] stepping in for Adam. I was wondering if you could provide any additional color on the drivers for the year-over-year softness in diversified fresh products produced for the Americas and the visibility of those drivers improving over the coming quarters. And lastly, you mentioned on your presentation that you are implementing a more conservative export strategy. I was wondering if you could provide additional color on that as well. Thanks.

[Rory Byrne, CEO]

Okay, Guillermo. I think part of the reason is quarterly reporting in some segments of our business can be a little bit misleading. So, you look at last year, for example, the great business out of South Central America was very strong in Q1 2022. And this year, personal supply dynamics was considerably worse. Having said that, the opposite has now happened in Q2 of 2023 versus Q2 of 2022, where there was, because of supply chain problems, there was a huge glut of products that came into the market in Q2. And at the moment, we don’t foresee that’s going to happen.

The berry business has been a little bit more difficult and just some timing differences around production issues, but nothing major. And when we spoke about a more conservative approach to export strategies, we were really talking about cutting back primarily on some of our export grade volumes that because of some of the problems the market suffered last year. Looking at all those factors, we still do expect that the full year outcome for this division would be more than satisfactory.

[Johan Linden, COO & Director]

One thing to add there Rory is also that the seasonality when it comes to Sherry’s was different this year because the Chinese New Year was earlier, so a lot of the volume was exported in Q4 instead of going into Q1.

[Rory Byrne, CEO]

Thanks, Johan. Yes.

[Unidentified Analyst]

That’s super helpful. Thanks. And if I could add a follow-up on consumer demand elasticity, and if you’ve seen any change in the trend, either across the business or across geographies?

[Rory Byrne, CEO]

We haven’t seen any material impact of price elasticity on demand. Perhaps a little bit of pressure at some of the individual products at the higher price per pound or per kilo of the product, a little bit of pressure perhaps in organics again on price, but nothing material so far so good. I mean, people, consumers, when they’ve got discretionary spend, our experience is that they are continuing to spend that on healthy region and prudential into that category, obviously.

[Unidentified Analyst]

That’s super helpful. Thanks. And congrats on the quarter.

[Rory Byrne, CEO]

Thank you.

[Operator]

[Operator Instructions] Your next question comes from a line of Bryan Spillane from Bank of America. Your line is open.

[Bryan Spillane, Bank of America]

All right. Thanks, operator. Good morning, everyone. Two questions for me. One, I just wanted to; I don’t know if I caught the whole thing. I thought you said in the first quarter, there was an asset sale of 7 million and then there are another 40 million of properties, I guess, that you’re expecting to sell. I just want to make sure I heard that comment in terms of asset sales.

[Jacinta Devine, CFO & Director]

Yes, no, that’s correct. So we had sales proceeds of $7.6 million in Q1. And they would have been on our balance sheet at the end of December. And then at the 31st of March, we have another $40 million split between about $10 million of assets that are for sale and about $30 million of actively marketed property. So, timing is always a little bit challenging. But yes, in total it’s $40 million.

[Bryan Spillane, Bank of America]

Okay. And then, excuse me. And then is just roughly like how we should think about the cash proceeds. Like, is there a taxable event in these asset sales?

[Jacinta Devine, CFO & Director]

Yes, there are in some of them. Yes. So certainly there will be a cash tax impact on those.

[Bryan Spillane, Bank of America]

Okay. And then it sounds like, well, my impression or listening to it, it sounds like, you’ve identified and maybe there’s some buyers for some of the properties and other assets you have. So like, is there a chance that that number, the asset sales actually creep up as we move through the year? Like, is there potential for more activity there?

[Jacinta Devine, CFO & Director]

And we hope so. It’s always a challenge. I mean, we have other than those figures that are called out, we have sold the vessels. So they weren’t on our balance sheet at the end of December for sale. So that’s an additional sale. And we’ve got proceeds of 6.7 million for those vessels.

[Bryan Spillane, Bank of America]

Okay. And it’s most of this, are you selling vessels or is it land? It sounds like it’s mostly vessels, but I just want to make sure I was right.

[Jacinta Devine, CFO & Director]

No. So for the 6.7 million posts a quarter in, that was two vessels that we didn’t use in our business. And the majority of the rest of us relate to Hawaiian Land.

[Bryan Spillane, Bank of America]

Okay. Okay. Yes. Thank you. And then second question, I guess, as we’re looking at the end market in the U.S., I think one of the things we’ve observed is as, even as some produce prices have come down, retailers are kind of slow to show changes in their cost to consumers. So just wanted to get your sense, is that accurate? There’s been retailers actually capturing a little bit of margin, maybe as their costs have come down and then, kind of your expectation as we kind of, as we move through the year, do we, do we think that we’ll see more of a accurate or a real-time reflection, I guess, of what’s happening.

Not understanding that, there’s there’s ups and downs with lots of different types of produce, but just our observation and checks suggest that retailers have been trying to cap -- hold on to that margin and just want to understand if that’s a structural change or just something that’s more transient.

[Rory Byrne, CEO]

Yes. My sense of it, Bryan, although it’s always hard to call is that it’s probably something more transient. I think retailers have been realistic in terms of the requirement and the need to pass on genuine cost increases. And at the same time, trying to balance the ultimate retail price to make sure that across a wide range of products that consumers continue to buy. So in the fresh produce sector, we don’t have any particular evidence of significant changes in any of the pricing to the, any on the margins that retailers are taking out of pricing. So on Europe, it’s a broadly similar situation. So, I think your last comment was the relevant one, but it’s across such a wide range of products and when non-banana pineapples, we have a very flexible dynamic pricing model that does pretty much accurately reflect the moving cost base in those individual products. I don’t think there’s any material shift there.

[Bryan Spillane, Bank of America]

Okay. And then just one last one, if I can, maybe for Jacinta, just if, currency is stable they are today, so there’s nothing moved. Would currency be a tailwind to reported results over the balance of the year?

[Jacinta Devine, CFO & Director]

Yes, no, it certainly would. So if we take euro dollar, it’s probably the major currency for us. And so while we’re down approximately 4% on in the quarter, it’s actually up 5% versus Q4 and about 2% from the full year basis. So we should see some positivity there in our retranslated numbers. Similarly with the SEK and yes, certainly. So…

[Bryan Spillane, Bank of America]

Not predicting currencies, but if, if it stays the same, it’ll be, it should contribute to EBITDA and the balance of the year.

[Jacinta Devine, CFO & Director]

Versus last year. Yes, absolutely.

[Bryan Spillane, Bank of America]

Correct. All right. Great. Thank you.

[Rory Byrne, CEO]

Thanks Bryan.

[Operator]

And your next question comes from a line of Gary Martin from Davy. Your line is open.

[Gary Martin, Davy]

Morning all. Congratulations on a strong set of results. Just a few questions on my side. I’ll just start with fresh fruit just to begin with. That was particularly strong. This was just looking out Q2 and H2. Do you think that banana and pineapple supply and demand dynamics are still in quite a good place? I’m really expecting kind of Q1’s robust performance to continue into the rest of the year. Would basically be the gist of my question.

[Rory Byrne, CEO]

Johan, you want to comment on that?

[Johan Linden, COO & Director]

Yes. So overall, we started a year when it comes to bananas with a very tight supply. We don’t see that continue the same way into Q2. We see a much more balanced demand supply. So it’s a balance compared to a tight one. However, on the pineapple side, we have seen a supply tighten up. So there we see a little bit of a short, shortness. We believe that it’s good. So overall we feel that we are in a good place when it comes to supply and demand, if you put it all together for fresh fruits. So we believe in the Q2 also that will be healthy.

[Gary Martin, Davy]

Excellent. And then just kind of associated with just the fresh fruit segment, I see commercial cargo. It didn’t, there was no color in either the presentation or the, or the results. Can I just get an update on just how that’s performing? It’s, I mean, obviously I think you spoke previously about the, the strong performance in FY 2022 not continuing into 2023, but I mean, has there been some strength kind of remaining?

[Rory Byrne, CEO]

Yes, we’re still, we’re still at the profits of the contribution that division is down and a lot of it is dry cargo and the rates of dry cargo have to have moved off some of the peaks in 2022. So it’s down, but still doing well.

[Gary Martin, Davy]

Excellent. And then just a second question, just on just to kind of lay the land on costs. I mean, I think he called out inflation overall as just moderating, but I suppose just in terms of shipping and sourcing, just to kind of get some of the puts and takes just for regards to what’s increasing and what’s decreasing and just your view for the rest of the year.

[Rory Byrne, CEO]

I think the, the only broad comment we can really make on that is it does appear to be a greater degree of stability around those costs. I think it costs, I think, shipping so far on some of the dry containers, you’re seeing some reduction in the rates and that hasn’t flown through fully into refill containers, but we’re not seeing the level of increases that we saw in prior years either. And the rest, it’s a mixed bag, lots of them down, but our sense of it is stability and moderation.

[Gary Martin, Davy]

Excellent. Good caller. Pass it on. Thanks.

[Operator]

And there are no further questions at this time. I will now turn the call back over to CEO Rory Byrne for some final closing comments.

[Rory Byrne, CEO]

Thank you. Well, thank you all for participating and the and the questions. So I think we can be very pleased with another strong quarter and obviously we’ve had some major challenges out there and we believe we’ve navigated our way through those challenges pretty successfully. And in summary, we think we’re well positioned to continue to move forward in a very good way. So thank you all for joining us today. Thank you very much.

[Operator]

This concludes today’s conference call. Thank you for your participation. You may now disconnect.