All right, I think we'll get started now. Hi, everybody. Thanks for joining us today. My name's Pooran Sharma, and I'm the Food and Agribusiness Equity Research Analyst at Stephens. I'm pleased to welcome two leaders from Fresh Del Monte Produce, FDP, who have joined us today: Monica Vicente, the Chief Financial Officer and Senior Vice President of FDP, and Christine Cannella, the Vice President of Investor Relations. Our plan today is to provide an overview of the industry, highlight Fresh Del Monte's business and key factors influencing its growth strategy, and cover some of the company's major initiatives. Towards the end of the session, we'll open it up for Q&A. With that said, why don't we get started? Monica and Christine, could you help investors understand a little bit about the industry and Fresh Del Monte's role within it?
Could you provide an overview of the key segments and revenue streams of the business?
Absolutely. So good afternoon, everyone. I think that for those of you who don't know much about the company, I'll just kind of start with an overview of the global fresh produce industry. It's a very highly competitive industry that is driven by growing consumer demand for healthy and fresh products. And Fresh Del Monte Produce is one of the key players in the space. We are a producer, a distributor, and a marketer of fresh and fresh-cut fruit. We also have prepared food items. We have beverages, juices, and snacks that we provide to customers in over 80 countries. We are a vertically integrated company. We have about 98,000 acres under production. We have globally approximately 30 distribution centers. There are, I would say, 20 fresh-cut facilities globally, as well as 12 vessels, a nd we have a large fleet of trucks and trailers.
So we have the Del Monte brand, which is one of the most highly recognizable brands in the world. And our business operates through three main segments. We have the fresh and value-added segment, which is our fastest growing segment, where you will find our high quality, our higher margin, and our innovative products, such as our pineapple varieties and our ready-to-eat items. Then we have our banana segment. And this is very core to our business, bananas are what help us to get into the retail supermarkets, as well as help us to optimize our logistics network. And then our third segment is our other products and services, a nd this is where you will find our Tricont trucking business, along with our commercial cargo shipping network. So while I could probably talk for another hour about the company, I think that's probably a pretty good start.
Okay, great. And I guess, could you maybe give us some insight into what are the main growth drivers as we look out over the next few years?
So hi, everybody, a nd thank you for the interest in Fresh Del Monte. I'm Monica Vicente, CFO. I've been with the company 26 years. So I've seen a lot. And our growth strategy is definitely on the fresh and value-added segment. Like Christine said, this is where we have higher margins. We can differentiate ourselves by providing innovative products, l ike I don't know if you've had a chance to look at the pink pineapple. This is something we developed over many years. We also have different varieties in our pineapple, like the Honeyg low, which is basically the perfect pineapple that comes out of our farms. But we harvest it separately. We market it separately, and we definitely get a premium for it. So as a company, we believe we need to focus on the fresh and value-added segment, which is where the margins are higher.
Bananas are always going to be important, as Christine said, because of the volume and the overhead absorption. We are vertically integrated, so it's important to have that volume to cover our ships, our distribution centers, but definitely, we're focusing on pineapple, fresh- cut fruit, and pineapple is actually part of the fresh- cut fruits. So fresh- cut fruit without pineapple doesn't really work, so those two items are key, and it's about 47% of our fresh and value-added segment, then we have fresh- cut vegetables, which we'll talk a little bit more about what we did with Mann. We did an acquisition in 2018. We recently did a strategic review of what we needed to do that business going forward because it was not performing as we wanted. So we definitely are focusing now on growing that business after we did a consolidation of four facilities into one.
We still have room to grow f resh-cut vegetables will be one aspect. The other one is avocados. Avocado is another major product that we have. We have a packing facility in Mexico. We buy from growers. We pack the product. We ship it to the customer. We also ripen the product in our ripening facilities. We still haven't tapped really into Europe and Asia. We believe the growth in Europe and Asia is important. Also, diversifying the sourcing. Right now, we depend on Mexico. We're looking at. We're already in Peru, but we want to increase Peru, Colombia, and recently, Guatemala was approved to come into the U.S. as well. That gives us another source.
Appreciate you sharing the growth drivers there. I guess, could we just move it on to the other side? What do you see as kind of the company's biggest challenges ahead? Could you share maybe what keeps you up at night and the company's approach to addressing some of these challenges?
I actually sleep very well, but so obviously, a company that's global in agriculture and vertically integrated, we have all sorts of risks. We're used to the risk of FX, which we hedge, euro, pound, yen, so we try to hedge as much as possible to be able to protect our revenue. We also have done some fuel hedges in the past, but fuel increases and decreases, we actually have our contracts have a variable for fuel, so that's how we protect that. Weather is a huge thing for us since we're in agriculture. We have diversification in our farms, so we grow in different parts of the world. Central America is a big part of where we grow our bananas and pineapples, and we have Guatemala, Costa Rica. We have the diversification, but really, what keeps me up at night, if anything, is the unexpected variables.
Because we know we have the variables that are common. I've been with the company 26 years. We've seen a lot of the same variables a nd I think we're pretty good about being agile and having the diversification to switch course whenever we have to. I think the climate changes that are more drastic recently are probably a little bit less easy to know which way we're going. We recently did a study to see what our production regions, what are the challenges they will have in the future. So we are investing in irrigation in some of our farms where there looks like water scarcity might be a problem. We're looking for other areas to grow, to expand our production to other regions of the world. So we are pretty diversified already in production. Like our pineapple, we grow most of it in Costa Rica.
But we also have Kenya production. We have Philippines production. But we're looking to see where else it makes sense to grow these products. Obviously, the weather, like recently, we had Hurricane Milton in Florida, one of our ports is in that area. And we were able to switch to Texas, to our Freeport in Texas. So having the diversification and the footprint we have helps us to react to some of these unexpected uncertainties. Same thing with the war in Ukraine and Russia. We were able to, since we sell in many other markets in Europe, we were able to shift some of the product that used to go into that region to other places. The Red Sea conflict, the Middle East conflict impacted our shipping through the Red Sea. We were able to adjust our shipping lines and get the fruit.
Maybe it took a little bit longer to arrive. But it's important, I think, to have the global footprint we have to mitigate some of the risk.
Appreciate that. I guess, if we could maybe shift over to the competitive landscape, who do you see as your primary competitor, and what steps does FDP take to differentiate itself versus in the fresh produce space?
Sure. Absolutely. I'll take that. Always a great question, Pooran. Thank you for asking that. So we compete with the large players like Dole, Chiquita, Calavo, and Mission, just to name a few. But on a global basis, there isn't a fresh produce company out there that can match our scale or what we've created with our distribution and our fresh- cut network. When I think about some of the key differentiators, I think it's the continuous innovation. Specifically, I will point to our pineapple varieties. As I said, the distribution and the fresh- cut network, where within a 350-mile radius of any of these facilities, we offer value-added services such as banana and avocado ripening, leveraging the Del Monte brand, that highly recognizable brand. It's the quality of our products. It would also be, I would say, the quality of the service that we provide to our customers.
And then also the strength of our balance sheet certainly sets us apart. So not all the differentiators, but I think those are some really key ones that stand out for me.
I guess, can we maybe talk about the strategic initiatives? Anything you have in place right now and how that'll be impactful over the next year or two?
Sure. So one of our initiatives is to expand our production of pineapple. Pineapple grows in certain areas of the world. It has to have certain climate conditions, certain soil conditions. We actually have the perfect plantations in Costa Rica. We grow most of our pineapple in Costa Rica. We still have some availability of land in Costa Rica. So we are expanding there. But there's a limit to how much you can do. So we are looking at other parts of the world to expand the pineapple, maybe M&A if something comes up. But it's definitely something that we know that pineapple is we are the pineapple company. It's not Dole. It's us. Okay? So this is the product that we push. And we feel we do a better job than any of our competitors. So we're pushing for that.
We also [do] fresh-cut fruit, obviously, [which] goes along with the pineapple, and we're also expanding on that. We're able to offer different products like our avocado guacamole, our fresh guacamole. We take some of the avocado that is not the size that the retailers want, so we make the fresh guacamole and can deliver, like Christine said, within 350 miles from our DC, so it's continuing to grow in the pineapple, the fresh-cut fruit, and then we're also, this year, we really kicked off exploring opportunities with some of the biomass that we produce in our farms and in our production facilities. We actually opened a facility in Kenya to produce biofertilizer with the residues from our pineapple canning facility there, and we expect to produce a biofertilizer first for our own use, but then in the future, we think we could probably sell to third parties.
Residue is something that we're looking into. We recently hired two high-level professionals with good experience in this area to help us explore this.
All right. Well, thank you for that, and I guess if maybe we could just hone in on innovation. Fresh Del Monte has been known for its innovative products, as you mentioned, like the Honeyg low pineapple. Could you maybe elaborate on your approach to R&D and innovation and maybe share some additional highlights?
Sure. Certainly. I'll take that question. Our R&D approach centers around consumers' preferences as well as sustainability. We've had several milestones over the years. In 1996, we introduced the Del Monte Gold Extra Sweet Pineapple. That was the first pineapple that set a new standard for pineapples. Prior to that, it was the Champaca version, which you typically just found in salad bars. People would serve it with cottage cheese. It was just a very bitter-tasting pineapple, also used as a decorative pineapple. Our fresh-cut fruit expansion took place in 1999. That's where you'll find our convenient, ready-to-eat items. As Monica has talked about, our Honeyg low and our Pinkg low pineapples. We launched those in 2021. Pinkg low alone took 17 years of research to bring that to market.
And then here most recently, in 2024, we introduced what's called the Rubyglow pineapple. And that is a pineapple with a red shell with a very sweet yellow flesh on the inside. So while the volumes are very small, I think what this truly shows is not only is this company a pioneer in the fresh produce industry, but we are very innovative. And especially when it comes to pineapple varieties, there is no company out there in this industry, in the fresh produce industry, that can match what we've been able to create.
Great. No, I appreciate that. I guess maybe from here we can talk about capital allocation here. And maybe what are your priorities for the deployment of capital going forward?
Sure. So right now, we have a $1 per share annual dividend. And we're definitely going to protect that. And we're about a 3% dividend yield. We think it's important to give back to our shareholders. So we definitely are going to keep protecting that. We are investing in our farms and our production areas. Like I said, some of it has to do with the expected climate change. So we're going to be investing in our farms for some sustainability, maintenance, et cetera. And then on the table, we've always done in the past repurchase of shares. Right now, we don't have a plan in place b ut this is something that's always discussed with the board. And if some M&A comes up that makes sense for us in our core business, where we want to grow, then we definitely consider that.
I guess a little bit to hone in on this a little bit further. I think Fresh Del Monte has reduced long-term debt to some of the lowest levels seen since 2017. Can you discuss maybe the rationale behind the deleveraging? And then what is your ultimate target?
So, we are in a business that we have some unexpected circumstances. We've always had a healthy balance sheet. We'd like to have a low ratio. Right now, we're at one times EBITDA leverage ratio. So that's pretty healthy. We feel comfortable right now. We did have some higher debt in the past few years due to the acquisition we did in 2018. But we've brought that down significantly. We've optimized our assets. We actually divested of quite a few assets in the past couple of years, either non-core or underutilized assets, which helped us bring down the debt, helped us also reduce our overhead. So we're on the right track with that. So we feel comfortable right now with our debt level. It gives us room to jump on an opportunity if it comes up or do something else to bring back to shareholders.
Great. I guess maybe we could just shift over to a little bit of fundamentals. I think with banana prices and volumes decreasing due to competitive pressures, how are you adjusting your strategy for this segment? And are you focusing more on profitability or market share in this challenging environment?
So bananas are a commodity. And what happened is not that the market necessarily is much lower in bananas. It's that the contract for bananas are negotiated at the end of the year. Like right now, we're going through our contract negotiations for next year. As a company, we were not willing to decrease pricing to the level that our competition, obviously, was out there in their RFPs. So we did lose some of the banana volume we had in the past. But we feel it's important to keep a reasonable margin. 2023, we had 10% margin on bananas, which was actually unusual, unusually high. And then so our margin is usually between 5% and 7% on bananas. This year, we're in the 7% range. And it's a fine line because you don't want to lose your market share. You also need the volume for the overhead absorption.
But we also think it's important not to go down on pricing so much that in the past, I had seen some years where we would lose money on bananas. And we're not in business to do that. So we hope our competition gets a little bit more rational this year. But we'll let you know in February how that went.
I guess we just shifting over to avocados and pineapples. We've seen some strength. Looks like it's driving sales in the fresh value-added segment. Could you maybe provide more detail on how you expect these categories to evolve over the next few years?
So let's take avocado first. Avocado, it can be volatile on the pricing, and we actually buy from the growers and pack it. I think I said this earlier, a nd then ship it to our customers. So we make our profits on the spread. So we have to be very careful when we buy the avocados that we're buying at the right price and then selling, obviously, at a reasonable margin. So avocado, I think, is changing now. The production in Peru this year was low. So once the production in Peru is back to more normal, hopefully next year, I think there'll be more competition from Mexico. Like I said, Guatemala is getting into the mix, which will also help the competition from Mexico. Avocados are very unique in that you can leave it on the tree for longer.
If you don't want to harvest, you can leave it on the tree for a little longer, and some of the producers in Mexico play with this, and that way, they increase pricing because they manage the supply, so I think with more production in different parts of the world, in Colombia as well, I think it will help to manage the supply and demand stability, so we do plan to grow in avocado. Like I said, we want to go into the other Europe, Asia, so that's definitely something that we're looking at, but I do think avocado will still be a little volatile in the near future, maybe long-term and not so much because of the different sourcing, and then as far as pineapple, we've seen a really strong demand for our pineapple, especially the Honeyglow pineapple, which is this perfect pineapple.
Right now, we can't produce enough. About 25% of our production is this specialty pineapple. And frankly, I wish we had a lot more because we really could sell a lot more of the Honeyglow. So I do see strong demand on pineapple in general, but especially these unique varieties. Did I answer your question?
Yeah. No, that was great. I appreciate that. Just given some of the pressures mentioned in fresh and value-added products and banana segments, could you maybe walk us through your guidance for the remainder of the year? Specifically, how are you anticipating seasonal challenges, competitive pressures, and cost fluctuations to impact both volume and pricing in these key areas? And additionally, if you could touch on any expected shifts in margin performance or operational efficiencies that might provide offsets to these pressures.
Sure. So each segment is its own animal. Bananas have been we said earlier in the year we were going to be down between 9% and 11% in total, mostly volume, that we lost the volume. We have contracts with customers. So that's already pretty much set in stone. There is a little bit of pressure on the cost. We do grow in Costa Rica. The colón has been very strong. And that impacts our cost in Costa Rica for both pineapple and banana. But we still see a margin between 5% and 7%, probably more on the higher side this year on banana. On the fresh and value-added, we said the same thing in Q3, which is we do expect our sales to be higher by 4% to 5%. And we're doing very well in that segment this year, so between 9% and 10% margin. We are, obviously, demand.
We recently decided to do the consolidation of demand facilities, which will help us save about $15 million-$20 million. But that's more next year on an annual basis. That will be an operating cost that we're decreasing. But that's more in 2025. So we're seeing a strong year.
Great. We appreciate that insight. We do have a little bit of time remaining. I just wanted to turn it over to the audience to see if you have any questions.
Ocean Freight is 100% our ships in North America and Asia. Tricont, I think, is the inland transportation in the U.S. about 50% our own trucks and then 50% third parties.
[audio distortion] . You mentioned 98,000 acres. How many of that do you own versus lease? And I guess second, when you talk about the Honeyglow pineapple, the specialty pineapple, what's the margin differential on that versus traditional pineapple?
I'll take the margin question. So we don't break out margins on a product basis. So we break it out via the segments. And the pineapples are within the fresh and value-added products. We have shared in the past that it is a higher margin. So whenever you look at innovative products such as the pineapple varieties that we bring to market, those do command a higher margin. Our fresh-cut products. Also, you're adding a service. So naturally, you're going to have a higher margin for those products as well.
On the acreage, rough estimate about 60%-70% we own. And where we do lease a lot of times is because the local country doesn't let us buy. Like in the Philippines, we have to lease because a foreign entity cannot own land. In Kenya, we also have very long-term leases, like 100 years and things like that. But most of the land we own.
Great. Well.
One more.
Oh, I'm sorry. Go ahead.
Do you think there's going to be any impact to your business given that it's so important to have you given the new administration?
Great question. So my opinion, obviously, who knows what's going to happen, right? But my opinion is we're in the food business. And having tariffs on food, I think, goes against decreasing inflation, especially for people in the supermarket. I also believe that the tariffs are there for, well, one, maybe leverage. So maybe a little bit of concern with Mexico if something happens and it's like to have leverage over something else, tariffs go on everything. But I think, in my opinion, the main reason for the tariffs, I think, is to bring production to the U.S., which you're not going to bring banana, pineapple production to the U.S.. So I feel that because we're food, because we're in a product that is not going to be brought to the US, I think we should be OK, hopefully. I'm sorry. I couldn't hear.
Leverage is down.
That's OK, so what I said is that we're definitely going to protect our dividend. We pay $1 per share annually, 3% yield. So we're definitely protecting the dividend. We do have some investments we need to make. So we do expect our CapEx to be a little bit higher next year in irrigation for some areas that we know may have challenges with water. And we're actually upgrading our technology. And we do have on the table, if we don't have a significant M&A where we feel that it's good for our business, we do have on the table in the future maybe a share repurchase. We've done it in the past. We haven't done it recently because our debt was high. Now we're more comfortable with the debt level. So we're in better shape to have other options.