Dole plc (DOLE) on Q2 2022 Results - Earnings Call Transcript
Operator: Welcome to the Dole plc 2022 Second Quarter Results Conference Call and Webcast. Today’s conference is being broadcast live over the internet and is also being recorded for playback purposes. [Operator Instructions] 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: Thank you, Victoria. Welcome, everybody, and thank you for joining our second quarter 2022 earnings conference call. This conference call is being webcast line on our website and will be available for replay after this call. Joining me on the call today are Johan Linden, Chief Operating Officer; and Jacinta Devine, Chief Financial Officer. This is Jacinta’s first earnings call since assuming the Chief Financial Officer on 1st of July. Jacinta is over 25 years of experience in the group and we wish her every success in her new role. Our Chief Executive Officer, Rory Byrne apologizes that he is been able to join us today as he is attending to a personal matter. During this call, we will be referring to presentation slides and supplemental remarks, and these are available on the Investor Relations section of the Dole plc website. Please note, our remarks today will include certain forward-looking statements within the provisions of the Federal Securities Safe Harbor Law. These reflect circumstances at the time they are made and the company expressly disclaims any obligation to update or revise any forward-looking statements. Actual results or outcomes may differ materially from those that may be expressed or implied due to a wide range of factors, including those set forth in our SEC filings and press releases. Our earnings press release, financial statements and related materials for the second quarter can be found on our website at doleplc.com/investors. Information regarding the use of non-GAAP financial measures may also be found in the press release, which also includes a reconciliation to the most comparable GAAP measures. The details of our statutory forward looking statements disclaimer can be found in our SEC filings and in the presentation slides, which we will be referring today. Our financial statements in the second quarter were also filed with the SEC earlier today and contain reported financial information for Dole plc for the quarters ended 30 June, 2022 and 30 June, 2021 and the half year numbers for both 2022 and 2021. Our earnings press release and investor presentation also referenced pro forma comparative financial information. This pro forma information illustrates Dole plc’s results for the second quarter and first six months of 2021 and that the merger IPO and refinancing had occurred on January 1, 2020. This is consistent with the pro forma financial information presented in the Form F-1 filed with the SEC in connection with the IPO. With that, I'm pleased to turn today's call over to Johan. Johan Linden: Thank you, James, and welcome everybody to – and thank you for joining us today. I want to begin by acknowledging that we recently marked the one-year anniversary of the completion of the IPO and the merger of Total Produce and Dole Food Company. The merger has brought together two highly synergistic and complementary organization establishing Dole plc as the global leader in our industry. We are pleased with how well the integration has gone and we continue to progress well with the synergy initiatives. In Q2, we again increased intercompany trade, which is a key objective. We are also making good progress in maximizing internal utilization of existing group assets and by working together to make investments that support the combined businesses. Additionally, we have continued with the rebranding of Total Produce businesses, which is an important step as we expand the presence of the DOLE brand in the marketplace. If we take a step back and reflect on the last year, there have been many headwinds the entire industry has faced. From rising input cost to global supply chain disruptions, the pandemic and the ongoing geopolitical situation causing market disruptions is undeniable that it has been a year full of unprecedented uncertainty and challenges, but we have been able to react to and mitigate the impact of these challenges at a speed and efficiency far superior to what we could have done prior to the merger. We know that the key to succeed in this industry over the long-term is scale and diversification, which is why our vertically integrated business model is – model supported by our highly strategic and diversified asset base has allowed us to continue performing well during this uncertain and challenging environment. Turning to our Q2 performance. Overall, the group has delivered results for Q2 in-line with our expectations. On a pro forma comparative basis, excluding the impact of currency translation and net M&A activity, revenue increased by approximately 3.2%. Adjusted EBITDA of 109 million was in-line with our expectations all the behind last year. The reduction on last year was predominantly due to expected changes in the phasing of our EBITDA and a slower than anticipated turnaround in our fresh vegetable business. Turning to our balance sheet. We are pleased to see our leverage come down to 3.4x at the end of the quarter and we expect our leverage to improve further in the second half. In the second quarter, we had strong focus on cash flow. While we needed to maintain some higher working capital to protect from supply chain shortages, we focused on tight management of working capital and discretionary spend. We also took a disciplined approach on CapEx focusing on essential projects and importantly, we made further progress on disposing of non-core assets totaling 10 million in Q2, as we continue to focus on optimizing our invested capital. We are pleased to announce today a cash dividend for the second quarter of $0.08 per share. This continues our commitment to return cash to shareholders. Turning to Slide 8, for our operational highlights. In our fresh fruit division, we had a strong quarter driven by our North American business and commercial cargo. As we refer to in our Q1 call, during the first half, we have implemented cost savings and risk mitigation initiatives, including putting additional hedges in place and progressed the challenging work of rebalancing our supply and demand in bananas after the changes in the marketplace caused by the war. In the absence of further abrupt changes in the market conditions, like we saw at the start of the war, we are now pleased with the outlook and are looking forward to a strong second half outperforming our prior year comparatives. Our diversified business on a like for like basis had a very robust quarter, despite ongoing supply chain and inflationary challenges. We are very pleased to see our Diversified segment consistently demonstrating their ability to trade well and dynamically set pricing in response to exceptional market conditions. We expect that robustness to continue in the second half and we are very pleased with the current progress we are making in these segments. While we are pleased with our second quarter performance overall, we are disappointed with the progress we have made in our vegetable business. Q2 showed significant improvements over Q1, but not to the levels we anticipated in our turnaround plan. And we expect now to face an unfavorable environment through the second half of 2022. Inflation continues to impact our value added salad business. We have been able to push through soft price increases. However, recent softness in the category demand is creating a difficult trade-off for the industry between the pursuit of the volume needed to maximize production efficiencies and the pricing needed to offset inflationary headwinds. To combat these challenges, we are actively engaged in mitigation efforts, while continuing to explore consolidation opportunities, as well as strategic opportunities for growth. While we remain confident in our ability to get vegetable business back to profit we do not now expect to see a full recovery in our vegetable business until 2023. With that, I will hand you over to Jacinta to give you the financial review. Jacinta Devine: Thank you, Johan, and thank you all for joining us here today. Turning to Slide 10. As Johan mentioned, we are pleased with the strong results delivered by the Group in what remains a difficult inflationary trading environment. Revenue for the second quarter was $2.4 billion, a decrease of 4% against the pro forma comparison, primarily due to a negative foreign currency translation impact of $112 million, and a net reduction of $69 million from M&A activity, both primarily in our diversified Fresh Produce - EMEA segment. On a like-for-like basis, revenue increased by 3.2%. This increase in revenue was driven by robust growth in our Fresh Fruit and diversified fruit segments, offset in part by decline in the Fresh Vegetables segment as a result of lower volumes in value-added salads, due to both lost volumes following the recall event earlier in the year and due to lower industry demand. Adjusted EBITDA for the second quarter was $109 million, a decrease of 34.5 million on a pro forma comparison basis. 4 million of the decrease in adjusted EBITDA was as a result of the impact of currency translation on the reported results. On a like-for-like basis, the $30 million decline was primarily due to the strong prior year comparison in Fresh Fruit and to a loss in Fresh Vegetables. Turning to Slide 11. Adjusted net income for the second quarter was $41.3 million in line with prior year and lower on a pro forma comparison. The decrease on the pro forma comparison was predominantly due to the decrease in adjusted EBITDA offset in-part by a lower tax expense. Adjusted fully diluted EPS for the quarter was $0.44 compared to $0.74 in the prior year and $0.70 on a pro forma comparative basis, again driven by the reduction in adjusted EBITDA. I will now provide some more detail on each of the individual segments, starting with Fresh Fruit on Slide 13. Revenue for the second quarter increased by 3.5%, compared to the pro forma comparison for 2021, continuing the good momentum from the first quarter. Revenue was positively impacted by increased pricing in commercial cargo, increased pricing in North America for bananas and higher worldwide volumes and pricing in pineapples. This was partially offset by lower pricing in non-core markets for bananas. Adjusted EBITDA for the second quarter decreased by 32.4%, compared to the pro forma comparison for 2021. The prior year comparisons had the benefits of strong market conditions, due to tight supply following the hurricanes in Central America in November 2020. And as expected, these conditions did not repeat in 2022. Adjusted EBITDA was also impacted by higher ocean and in-land freight costs, higher cost in packaging, fertilizers, and other materials. These higher costs were partially offset by higher pricing in core markets, as well as strong performance in the commercial cargo business. Moving to the Diversified Fresh Produce - EMEA on Slide 14. Revenue for the second quarter decreased 10.7%, compared to the pro-forma comparison for 2021. This was primarily driven by a negative translation impact on currency of $110 million, due to the strengthening of the U.S. dollar in the quarter against all major European currencies. In addition, it was a [net reduction] [ph] to revenue from M&A activity of 69 million in the quarter. On a like-for-like basis, revenue grew 8.1% with growth seen across the division, driven by increased pricing and additionally due to strong revenue growth in South Africa driven different seasonal [export timings] [ph] this compared to 2021. Revenue growth was partially offset by some logistics challenges in Europe, which impacted volumes. Adjusted EBITDA for the second quarter decreased by 3.9%, compared to the pro forma comparison for 2021. The decrease in adjusted EBITDA was primarily a result of translating the results of European currency businesses into U.S. dollar, which strengthened significantly against European currencies, compared to the prior year. On a like-for-like basis, adjusted EBITDA increased 7.4%, driven by a strong performance from our Spanish and UK businesses in the quarter, offset by a more challenging quarter for our Northern European businesses, due to logistical challenges. Turning to diversified Fresh Produce - Americas and Rest of World. Revenue for the second quarter increased 5.7% compared to the pro forma comparison for 2021. This increase was primarily driven by strong performance in the potato, onion and avocado categories, as well as a recovery in Chilean grape volumes after weather impacted volumes in Q2 of 2021. Adjusted EBITDA for the second quarter decreased by 5.4%. This decrease was driven by Q2 2021 having a seasonal timing benefit in the quarter, compared to Q2 2022 and due to a challenging quarter in a joint venture kiwi business. Excluding seasonal timing impacts, there was a positive development in the majority of the North American businesses in the quarter, in particular in the avocados, potatoes, and onion categories. Now turning to Fresh Vegetables on Slide 16. Revenue for the second quarter decreased by 6.9%, compared to the pro forma comparison for 2021. Revenue was negatively impacted by lower volumes of value-added salad products to both to last volumes following the value-added salad recalls in December 2021 and January 2022, and lower industry demand. Revenue was also impacted by a planned decrease in volumes in fresh packed vegetable products. These decreases were partially offset by price increases in value added salads and significantly stronger pricing in fresh packed vegetables products supported by the reduced volume strategy. Adjusted EBITDA for the second quarter was a loss of $5.7 million. Fresh vegetables adjusted EBITDA was negatively impacted by lower revenue and lower cost absorption due to lower volumes, as well as by inflationary pressures on freight, packaging, and labor costs. These challenges in the valued added salads business were partially offset by improved performance in the fresh packed products. Turning to Slide 17. Capital expenditures for the second quarter were $22 million. We have now invested $39.4 million year to date, [spending for] [ph] reinvestments in farms and glasshouses in our growing regions and inefficiencies in logistics, warehousing, and processing closer to the markets. We are now expecting capital expenditure of $110 million for the year, a reduction of 15 million versus our prior guidance. After completing disposal of two non-core warehousing assets in Europe in the quarter, we have now generated approximately $27 million in sales of non-core assets year to date and remain focused on optimizing our invested capital further in the coming quarters. Looking at working capital. Earlier this year, in addition to our normal seasonal working capital increases, we took additional precautionary measures by building up inventory to combat potential shortages due to global supply chain concerns. As we entered Q2, we have been starting to see the normal seasonal working capital effects unwind, and while we expect our working capital to continue to come down as we move into the second half, we do still see an underlying higher level of working capital now, compared to prior years being driven by the precautionary measures we took earlier in the year and higher prices. Prior to the beginning of 2022, Dole entered into $600 million of interest rate swaps with maturity dates ranging from 3 years to 5 years, which effectively converted 600 million of our debt from variable fixed rates. And earlier this year, we added a further 100 million swaps, such that we now have approximately half of our outstanding debt at fixed interest rates. We are pleased that we were [proactive in mitigating] [ph] some of our exposure to rising interest rates. However, in-light of the recent significant interest rate increases announced by many central banks driving up underlying base rates, we expect the full-year interest expense to be approximately $60 million. We are continuing to make good progress on management of our global tax outlay after the merger last year and having considered our latest operational forecast for the year. We expect an adjusted effective tax rate in the range of 23% to 25%. We are pleased that we were able to further diversify our funding base in Q2. And as planned, we entered into a new three-year committed trade receivables arrangement giving us increased financial flexibility at a lower cost as we continue to invest in the business and execute the strategy we outlined as part of the IPO. Our net leverage at the end of the quarter decreased to 3.4x. We expect leverage to decrease further in the second half of the year. Now, I will hand you back to Johan, who will give an update on our full-year 2022 outlook and closing remarks. Johan Linden: Thank you, Jacinta. The economic environment remains fluid as we look into the second half and today we are currently seeing some both positive trends and some further challenges. On the more challenging side, as we mentioned when referring to our fresh vegetables business, we have recently seen some initial signs of adjustments in consumer behavior with evidence of consumer decreasing the demand for certain value-added products, which have a higher retail selling price. However, partially compensating for this, we have seen some signs of demand increasing in the banana category as consumers look to substitute for more or substitute more for products with a lower retail selling price. While in our two diversified segments, our extensive range of products and markets leaves us well placed to perform well as economic conditions change. Additionally, on the positive side, we have recently been seeing some stabilization in prices in important commodities like packaging and fertilizers, as well as in fuel and we also started to see some signs that we are turning the corner on availability of labor. In summary, we are pleased with the outlook in the two diversified segments and believe we have an improved outlook in our fresh fruit segment, compared to Q1. However, due to a slower than anticipated return to full operating profitability in our fresh vegetables, and the increasing impact on translation due to the significant strengthening of the U.S. dollar, we believe it is prudent to reduce our full-year adjusted EBITDA guidance by approximately 5.5% to a range of 330 million to 350 million. We remain positive on the long-term outlook and our priorities for the second half of the year remain in-line with that – with what we set out during the last earnings call with a critical focus on accelerating the turnaround of our value-added salad business. In closing, we are delighted to have now reached a one-year milestone of operating at Dole plc and I want to thank again all our talented and dedicated people for the immense contributions that [have made] [ph] our business in the past year. Because of the strength of our people and the support of our partners and customers, we are looking to the future with great confidence. With that, I will now hand you back to the operator and we can open the line for questions. Operator: Thank you. [Operator Instructions] And our first question comes from Patrick Higgins at Goodbody. Please go ahead. Your line is open. Operator: Thank you for your question. Our next question comes from Adam Samuelson at Goldman Sachs. Please go ahead. Operator: Thank you for your question. Our next question comes from Christopher Bonds at Deutsche Bank. Please go ahead. Operator: Thank you for your question. Our next question comes from Roland French at Davy. Please go ahead. Operator: Thank you very much for your question. Our next question comes from Kenneth Zaslow at Bank of Montreal. Please go ahead. Operator: Thank you for your question. Our next question comes from Bryan Spillane at Bank of America. Please go ahead. Operator: Thank you very much for your Ben. At this time, there are no further questions. I'd now like to pass over to Johan Linden for any final remarks. Johan Linden: Well, then, thanks for all of you for joining the call today and for the continued interest in Dole, and we are looking forward to speaking with you soon again, all the best.DOLE Ratings Summary
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