Yahoo Finance Dole plc (NYSE:DOLE) Q3 2023 Earnings Call Transcript
Dole plc (NYSE:DOLE) Q3 2023 Earnings Call Transcript November 16, 2023
Dole plc beats earnings expectations. Reported EPS is $0.24, expectations were $0.11.
Operator: Welcome to the Dole plc Third 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 a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. For opening remarks and introductions, I would like to turn the call over to Head of Investor Relations with Dole plc, James O'Regan.
James O'Regan: Thank you. Welcome, everybody, and thank you for taking the time to join our third quarter 2023 earnings conference call and webcast. 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 to supplement our remarks, and these, along with our 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 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. Information regarding the use of non-GAAP financial measures may be found in our press release which also includes the reconciliation to the most comparable GAAP measures. With that, I'm pleased to turn today's call over to Rory.
Rory Byrne: Thank you, James. Welcome, everybody, and thank you for joining us today as we discuss our results for the third quarter. So turning to slide six and the financial highlights for the third quarter. Well, following on from our good performance for the first half of the year, we are very pleased to report another strong result for the third quarter. We delivered revenue and adjusted EBITDA growth, driven mostly by our two diversified fresh produce segments. Group revenue increased by 4.2%, driven largely by higher pricing and adjusted EBITDA increased by 7.6%. Adjusted diluted earnings per share was $0.24 for the quarter compared to $0.28 in the prior year with a reduction primarily due to higher year-on-year interest expense.
We continue to focus on optimizing our balance sheet, and we are pleased to report that in excess of $45 million cash proceeds were realized from the sale of surplus lands in Hawaii and Honduras in the quarter. Combined with good working capital management across the group, these proceeds contributed to a reduction in our net leverage to 2.4 times at the end of September. So now we turn to slide eight for our operational highlights. Our Fresh Fruit segment delivered another good result in Q3. The result was driven by strong performance from our European operations, which continued to benefit from a better supply demand balance in '23 compared to 2022. In North America, our operations are continuing to perform well in spite of intense competition in the marketplace, higher sourcing costs on the impact of lower commercial cargo profitability.
As always, supply and demand dynamics in the banana market, and to a lesser extent, the pineapple market remain important variable as we approach the end of 2023. Weather remains the most important variable we're monitoring and the impact of El Nino in particular and very high levels of accumulated rainfall in Ecuador in the year-to-date, which have impacted production volumes and spot prices. Banana supply is currently tight and is forecast to decrease for next year. To-date, we've managed the challenges posed by El Nino very well and we remain keenly focused on maintaining good drainage, irrigation and flood protection in our farms and optimizing our diverse sourcing base so that we continue to service our customers well even if supply challenges persist.
Moving on then to our diversified EMEA business. Our diversified EMEA segment has continued its good momentum from the first half of the year, delivering another quarter of strong revenue and adjusted EBITDA growth. Revenue growth continues to be driven by higher pricing as well as the expected benefit from foreign currency translation after we experienced translation headwinds in 2022. At current exchange rates, we expect to see a further marginal benefit from FX translation in the fourth quarter. We continue to make good progress by managing our cost base efficiently and delivery of synergies across this segment. We've seen the benefits of our investments in ripening, handling and pre-packing and these are supporting further expansion across the European marketplace.
We also continue to identify and execute on small bolt-on acquisition opportunities that are delivering value for the group. Altogether, we're expecting to have a positive end to 2023 in this segment. Our Diversified Americas segment had an improved performance in the third quarter, benefiting from a favorable prior year comparative. Improved supply chain conditions in 2023 are allowing for better export conditions and we anticipate a more stable performance in this regard in the fourth quarter also. Our performance in the North American market remains robust across most of the commodities in the market, driven by stronger pricing, which is offsetting lower volumes and some ongoing challenges in the berry category. Looking ahead to the remainder of the year, we are keenly focused on the start of the Southern Hemisphere export seasons and some of our important categories such as cherries and grapes and delivering a strong service to our customers.
Turning to the Fresh Vegetables divisions. As you know, earlier this year, we announced our decision to sell our Fresh Vegetables into Fresh Express and the regulatory review is still ongoing. We do need to let that review play out, so we cannot provide any substantive updates today. We do, however, have some concern regarding the length of the regulatory review. While the combination with Fresh Express is still, in our view, the best outcome for all stakeholders. If we are not able to close that transaction due to regulatory reasons or otherwise, we remain committed to exiting the business. We continue to believe that doing so will benefit our strategic priority of accelerating growth in our core business areas. So with that, I'll hand you over to Jacinta to give the financial review.
Jacinta Devine: Thank you, Rory, and good day, everyone. Firstly, turning to the group results on slide 10. From a group perspective, the results for the third quarter were very pleasing. Revenue increased $82 million or 4.2%. And on a like-for-like basis, the increase was 1.2%. Adjusted EBITDA increased $6 million to $85.2 million. Growth in diversified fresh produce EMEA and diversified fresh produce Americas and rest of world were the key drivers. And our Fresh Fruit segment delivered a strong result against a strong prior year benchmark. On a like-for-like basis, adjusted EBITDA increased 4.2%. For the first nine months of the year, we delivered $308 million of adjusted EBITDA, an increase of 25 million compared with the prior year.
Net income increased to $54 million from $46.6 million and income from continuing operations was $55.7 million compared to $58.3 million. The increase in net income was driven by higher adjusted EBITDA and a gain on sale of assets of $28.8 million. Diluted EPS from continuing operations was $0.50 and diluted EPS was $0.48, a 14% increase from the prior year. Adjusted net income decreased to $22.6 million from $26.2 million and adjusted diluted EPS was $0.24 compared to $0.28 in the third quarter of 2022. The decrease was predominantly driven by the increase in interest expense over the last 12 months as well as higher income tax expense, partially offset by the increase in adjusted EBITDA. In the third quarter, underlying performance within the Fresh Vegetables business continues to improve despite an ongoing challenging operating environment.
And this can be seen in the decreased loss from discontinued operations for the third quarter of 2023 compared to 2022. Turning now to the divisional updates for our continuing operations and starting with Fresh Fruit on slide 12. The Fresh Fruit division delivered a good result in the third quarter. Revenue decreased marginally by 0.3%. The decrease was primarily due to lower banana pricing in North America, which was partially offset by higher worldwide volumes of banana sold, an increase in worldwide pricing of pineapple and stronger banana pricing in Europe. Adjusted EBITDA decreased by $4 million or 8.6% due to a strong comparative third quarter in 2022. The decrease was mainly due to lower revenue, higher food sourcing costs and a decrease in commercial cargo activity, partially offset by lower shipping and logistics costs as well as by strong underlying pricing.
Turning to diversified fresh produce EMEA. This division performed very strongly in the quarter with revenue increasing 12.7% and driven by a favorable impact from foreign currency translation and pricing increases across the segment. On a like-for-like basis, revenue increased 4.8%. Adjusted EBITDA increased by $4 million or 13.8%, again positively impacted by foreign currency translation. On a like-for-like basis, the increase was 6.6% and driven by a strong performance in Ireland, the UK, Spain and the Netherlands. Finally, diversified fresh produce Americas and Rest of the World on slide 14. As expected, this segment outperformed a comparative period in the third quarter. Revenue decreased 2%, primarily driven by lower revenue for berries in North America as well as by lower volumes of most other commodities partially offset by inflation justified price increases.
Adjusted EBITDA was $5.2 million, an increase from a $900,000 loss in the prior year. The prior year loss was due to one-off supply chain disruption, which impacted the Chilean grape business. There was a continued strong performance in those marketed products in North America in the quarter. Now turning to slide 15 to discuss our cash generation, capital allocation and leverage. Firstly, I draw your attention to our cash flow statement in our GAAP financial statements and highlight that this is now a split between continuing operations and discontinued operations. We have set out a definition of free cash flow from continuing operations, a non-GAAP measure in the appendix of our press release and also on this slide of our earnings presentation.
For the first nine months of 2023, free cash flow from continuing operations was $105.8 million driven by strong adjusted EBITDA performance and good management of working capital across the group. For the full year, our current expectation is that working capital will be neutral and we are targeting free cash flow from continuing operations of at least 110 million. Capital expenditure from continuing operations was $15.7 million in the third quarter. Expenditures included farm renovations in banana's new plantains and ongoing investments in IT, logistics and efficiency projects in our warehouses and processing facilities. For the full year, we now expect CapEx from continuing operations to be $85 million. We continue to dispose of noncore assets within the group.
And as Rory mentioned, we received proceeds of $45.5 million in the quarter, primarily from the sale of a large part of land in Hawaii. At the end of September, the combined value of our assets held for sale and actively marketed property was $24 million and we remain optimistic that we can deliver further asset sales in the fourth quarter. Interest expense has increased approximately $5.2 million year-over-year to $20.9 million following the rising rates over the past 12 months. For the full year, we are retaining our forecast of 90 million, which is inclusive of interest expense allocated to discontinued operations. Continuing our commitment to return cash to shareholders, we are pleased to declare a dividend of $0.08 for the third quarter, which will be paid on January 4th, 2024, to shareholders on record on December 14th, 2023.
Finally, we are pleased that the strong free cash flow generation and asset sales contributed to a reduction in our leverage to 2.4 times at the end of the quarter, continuing the downward trend in our leverage over the last 12 months. Now I will hand you back to Rory, who will give you an update on our full year outlook and closing remarks.
Rory Byrne: Thanks, Jacinta. Well, the results of the group over the first nine months of the year have been very pleasing. Group revenue of $6.2 billion is 3.2% ahead of '22 million group adjusted EBITDA of $308 million is 9% ahead. This translates to an adjusted EBITDA margin of 5% compared with 4.7% for the first nine months of '22. While the macro environment continues to remain complex and weather impacts remain unpredictable, we are confident in the strength of our diversified supply base and the experience and quality of our operating teams across the globe to deal with challenges as they arise. Overall, our strong results in the first nine months position us well to deliver a good result for the full year, and we are now targeting an adjusted EBITDA for 2023 of at least $365 million.
Our strategic priorities for the remainder of the year remains the same and to recap these are accelerating growth in our core business areas and categories exiting the fresh vegetable business, focusing on cost control and operating efficiencies across our businesses, including the ongoing value creation and collaboration projects and continuing with a disciplined approach to capital. I want to finish by once again, thank you all our people across the group for their ongoing commitment and dedication to drive Dole plc forward as well as our suppliers and customers for their ongoing support, which provides us with confidence as we look out towards the remainder of the year. With that, I'll hand you back to the operator, and we can open the line for questions.
Operator: Thank you. [Operator Instructions] Your first question comes from the line of Chris Barnes of Deutsche Bank. Your line is open.
Christopher Barnes: Hi. Good afternoon and thanks for the question. I guess, first, Rory, I just wanted to ask about El Nino. I know you called out the Ecuador rains impacting banana supply conditions, but there's also been a fair amount of trade press regarding shipping bottlenecks through the Panama Canal. So amidst the drought there. So it would be great just to hear a status update on what you're seeing on the ground today and how you expect these conditions to evolve over the coming months.
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