Release Date: September 10, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Del Monte Philippines saw a 13% increase in sales in Q1, driven by strong marketing efforts and a resurgence in market operations.
- The international market experienced 20% growth, particularly in fresh fruit operations in China, South Korea, and Japan.
- Operating profit increased by 46% and net profit by 52% in Q1, indicating strong financial performance.
- The company has implemented corrective measures in plantation operations, expecting full recovery in productivity within two years.
- Del Monte Foods in the US has taken proactive steps to cut costs and reduce labor, showing improvement in pack season performance.
Negative Points
- Del Monte Foods in the US is facing financial and operational difficulties, requiring new financing and support from the parent company.
- High inventory costs from previous years are still impacting financial performance, with significant profit leaks due to excess inventory.
- The company has stretched payables, indicating pressure on maintaining commitments with vendors.
- The Philippine unit's plantation productivity was severely impacted by record-breaking rainfall in 2022, with full recovery expected only in two years.
- The US market is seeing a shift in consumer preference from packaged to fresh and refrigerated fruits, impacting the center store fruit business.
Q & A Highlights
Q: Can you share with us what measures you took to turn around Del Monte Philippines? And do you think these will be sustained?
A: We addressed issues in the plantation and Philippine market sales operations by bringing in new leadership and reinvesting in advertising and promotions. These efforts have shown positive results in Q1, and we expect continued progress in the coming quarters. - Luis Alejandro, Chief Operating Officer
Q: Will the strategy of extending loans in the US apply to the maturing bonds in the Philippines?
A: We have not extended loans in the US; they mature in fiscal year '28. The parent company is required to contribute $30 million by January 2025, but there are no plans for additional support from affiliates. We plan to settle the bonds maturing in December. - Parag Sachdeva, Chief Financial Officer
Q: How is the performance of the Philippine unit in the first quarter?
A: The Philippine unit saw a 13% increase in sales year-over-year, driven by strong market sales operations and marketing efforts. Beverage and culinary segments showed significant growth, and international market sales were up 20%. Operating profit increased by 46%, and net profit by 52%. - Luis Alejandro, Chief Operating Officer
Q: How is the cash flow of the Philippines?
A: The operating free cash flow remains strong, with receivables at an all-time low and inventory reduced. However, we need to address stretched payables to maintain vendor commitments. - Parag Sachdeva, Chief Financial Officer
Q: What are the plans for the newly issued Jubilant Year bond?
A: The bond was issued to buy out part of the minority stake that SEA Diner has at DMPI. There is no cross-default with other units of DMPL, and it is intended for use in the Philippine business only. - Parag Sachdeva, Chief Financial Officer
Q: How has the pack season in the US been relative to expectations in terms of costs?
A: The pack season has been within our targeted range for conversion costs despite headwinds. We took proactive steps to cut costs and reduce labor. The vegetable category has stabilized, and we are seeing growth in broth and Joyba boba tea products. - Gregory Longstreet, President & CEO
Q: When will we see a lower cost level of inventory?
A: Improvement will begin in the second half of the year, with the largest benefit in fiscal '26. We are working on reducing costs through asset-light strategies and cost reduction efforts. - Gregory Longstreet, President & CEO
Q: What are the potential targets for selective asset sales in the US?
A: We are looking at production and brand assets that could facilitate manufacturing consolidation and deleveraging. News releases on these projects will be coming in the next few months. - Gregory Longstreet, President & CEO
Q: Will the harvest in the Philippines be back to normal levels?
A: We expect full recovery in about two years. Corrective measures have been implemented, and we do not anticipate the same severe weather conditions that impacted us in 2022. - Luis Alejandro, Chief Operating Officer
Q: What are the growth drivers for the Philippines and international markets?
A: For international markets, the focus is on fresh MD2 pineapple, especially in China. In the Philippines, growth will come from maximizing core categories and introducing new products, with a focus on both market share and consumption building. - Luis Alejandro, Chief Operating Officer
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
