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Del Monte points to inflation in Q3 financial report

CORAL GABLES, Fla.–(BUSINESS WIRE)– Fresh Del Monte Produce Inc. BB #:111187 today reported financial results for the third quarter ended October 1, 2021.

Financial highlights for the third quarter and first nine months of 2021:
• Net sales for the third quarter of 2021 increased to $1,004.8 million compared with $989.7 million in the prior-year period; Net sales for the first nine months of 2021 increased to $3,234.6 million compared with $3,200.0 million in the prior-year period;
• Gross profit for the third quarter of 2021 decreased to $48.9 million compared with $67.3 million in the prior-year period; gross profit for the first nine months of 2021 increased to $264.0 million compared with $214.5 million in the prior-year period;
• FDP net income(1) for the third quarter of 2021 was $1.3 million compared with $17.4 million in the prior-year period, corresponding Diluted EPS(2) was $0.03 compared with $0.37 in the prior-year period; FDP net income(1) for the first nine months of 2021 was $91.2 million compared with $48.3 million in the prior-year period, corresponding Diluted EPS(2) was $1.91 compared with $1.01 in the prior-year period;
• Adjusted EBITDA(3) for the third quarter of 2021 was $26.2 million compared with $51.0 million in the prior-year period; Adjusted EBITDA(3) for the first nine months of 2021 was $192.0 million in the first nine months of 2021 compared with $165.5 million in the prior-year period.

“While we continue to operate in one of the most challenging macroeconomic environments in recent history, impacted by inflationary and cost pressures across our supply chain, we remain focused on growth by managing our business for the long term and on continuing to provide reliable, quality service to our customers,” said Mohammad Abu-Ghazaleh, Chairman and Chief Executive Officer.

“In terms of seasonality, the second half of the year is typically more challenging due to industry-wide excess supply and shifts in demand towards seasonal fruits. During the third quarter, we continued to experience significantly higher input cost and labor shortages, which impacted our margins and profitability. To offset this impact we are implementing inflation-justified price increases in an effort to maintain our continuous supply and service levels.”

“As we move forward, we believe that our recent capital investments in the automation of our production facilities, further leveraging of our vertical integration, such as the recent addition of 6 new refrigerated container vessels to our fleet, optimization and consolidation of our operations and product rationalization will prove to be advantageous by putting us in a stronger, more agile position.”

Net sales for the third quarter of 2021 increased $15.1 million, or 2%, compared with the prior-year period. The increase in net sales was driven by higher net sales across all the Company’s segments, particularly the other products and services segment including third-party freight services and poultry and meats category. Net sales were also positively impacted by favorable exchange rates.

Gross profit for the third quarter of 2021 was $48.9 million compared with $67.3 million in the prior-year period and Adjusted Gross profit(3) was $48.9 million compared with $69.1 million in the prior-year period.

The decrease was primarily as a result of the impact of inflation, strained transportation capacity, lack of sufficient labor availability and other cost pressures, which resulted in higher per unit production and distribution costs including packaging materials, fertilizers, inland freight, labor and fuel costs.

The impact of these pressures in the third quarter was intensified by seasonality, as the Company has historically realized a greater portion of net sales and gross profit during the first two calendar quarters of the year. Gross margin decreased to 4.9% from 6.8% in the prior-year period.

Operating income for the third quarter of 2021 was $1.3 million compared with $26.6 million in the prior-year period, and Adjusted Operating income(3) was $0.3 million compared with $25.3 million in the prior-year period. The decrease in operating income was primarily due to lower gross profit, and higher selling, general and administrative expenses mainly due to higher administrative expenses.

FDP net income for the third quarter was $1.3 million compared with $17.4 million in the prior year-period and Adjusted FDP Net income(3) was $0.7 million compared with $16.4 million in the prior-year period. The decrease was primarily the result of lower operating income.

Fresh and Value-Added Products
Net sales for the third quarter of 2021 increased approximately $1 million compared with the prior-year period, principally as a result of increased net sales of pineapple and avocado. Partially offsetting the increase were decreases in net sales of vegetables, prepared food products and non-tropical fruit.

The primary drivers of the variance in net sales were:
• Pineapple net sales increased in most regions driven by higher sales volume, partially offset by lower per unit sales prices.
• Avocado net sales increased primarily in North America driven by higher per unit sales prices, partially offset by lower sales volume.
• Vegetables net sales decreased primarily in North America, including our Mann Packing operations, driven by lower sales volume related to lower demand from the foodservice channel, partially offset by higher per unit sales prices.
• Prepared food products net sales decreased primarily in Europe driven by lower availability mainly of canned pineapple products. The prior-year period benefited from heightened customer demand related to the COVID-19 pandemic as more people stocked up on canned goods.
• Non-tropical fruit net sales decreased primarily in the Middle East.

Gross profit for the third quarter was $40.9 million compared with $54.2 million in the prior-year period, primarily due to lower gross profit on avocado, prepared food products, fresh-cut vegetables and pineapple, partially offset by vegetables. Segment performance was negatively impacted by inflationary and cost pressures, which resulted in higher per unit production and distribution costs including packaging materials, fertilizers, inland freight, labor and fuel costs. Gross margin decreased to 6.8% from 9.0% in the prior-year period.

The primary drivers of the variance in gross profit were:
• Avocado gross profit decreased in North America primarily driven by lower sales volume coupled with higher per unit production and distribution costs.
• Prepared food products gross profit decreased primarily in Europe driven by lower net sales coupled with higher per unit distribution costs.
• Fresh-cut vegetable gross profit decreased in North America, primarily in our Mann Packing operations, mainly driven by higher per unit product costs and lower production yields.
• Pineapple gross profit decreased primarily in North America due to lower per unit sales prices coupled with higher per unit production and distribution cost.
• Vegetables gross profit increased primarily in the Middle East.

Adjusted Gross profit(3) in the fresh and value-add products segment for the third quarter of 2021 was $40.9 million compared with $55.6 million in the prior-year period.

Banana
Net sales for the third quarter of 2021 increased $3.5 million compared with the prior-year period, principally due to higher net sales in Europe primarily related to higher per unit sales prices.

Gross profit for the third quarter of 2021 was $2.4 million compared with $10.8 million in the prior-year period, primarily driven by Asia and North America. The consolidated decrease was driven by excess industry supply, which lowered per unit sales prices coupled with higher per unit distribution and production costs impacted by inflationary and cost pressures. As a result of these factors, gross margin decreased to 0.7% compared with 3.0% in the prior-year period.

Adjusted Gross profit(3) in the banana business segment for the third quarter of 2021 was $2.4 million compared with $11.2 million in the prior-year period.