Good day, everyone, and welcome to Fresh Del Monte Produce third quarter 2022 earnings conference call. Today's call is being broadcast live over the Internet and is also being recorded for playback purposes. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question-and-answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, again, press star one. For opening remarks and introductions, I would like to turn today's call over to Vice President, Global FP&A and Investor Relations with Fresh Del Monte Produce, Ana Miranda. Please go ahead, Ms. Miranda.
Thank you, Cheryl. Good morning, everyone, and thank you for joining our third quarter 2022 conference call. As Cheryl mentioned, I am Ana Miranda, Vice President, Global FP&A and Investor Relations with Fresh Del Monte Produce. Joining me in today's discussion are Mohammad Abu-Ghazaleh, Chairman and Chief Executive Officer, and Monica Vicente, Senior Vice President and Chief Financial Officer. I hope you've had a chance to review the press release that was issued earlier this morning via Business Wire. You may also visit the company's IR website at investorrelations.freshdelmonte.com to access today's earnings materials and to register for future distributions. This conference call is being webcast live on our website and will be available for replay after this call. Please note that our press release and our call today include Non-GAAP measures.
Reconciliations of these Non-GAAP financial measures are set forth in the press release and earnings presentation, which is available on our website. I would like to remind you that much of the information we'll be speaking to today, including the answers we give in response to your questions, may include forward-looking statements within the provisions of the Federal Securities Law Safe Harbor. In today's press release and in our SEC filings, we detail material risks that may cause our future results to differ from these forward-looking statements. Our statements are as of today, November second, and we have no obligation to update them or any forward-looking statements we may make. During the call, we'll provide a business update along with an overview of our third quarter 2022 financial results. With that, I'm pleased to turn today's call over to Mohammad.
Thank you, Ana, and good morning, everyone. Thank you for joining us on today's call. As per our press release, we delivered another solid quarter with strong performance across our entire operations. We generated strong net sales and profitability despite ongoing macroeconomic headwinds. Our team's efforts enabled us to thrive this quarter in the face of wide range challenges, including persistent inflation, geopolitical risks, and volatility in the fuel market, to name a few. During the third quarter, our net sales increased 5% compared with the prior year period. We saw a continuation of our robust top-line trend, marking six consecutive quarters of growth versus the prior years' periods.
We realized adjusted EBITDA of $58 million, representing more than 2-fold increase compared with the prior year period. As a result, we posted a robust adjusted EBITDA margin of 5.5%. Gross margin in our fresh and value-added segment was 9.2%, the highest level achieved in 2- years, benefiting from product mix of higher margined products. We accomplished these results while maintaining a healthy balance sheet. Our debt balance remained relatively in line with the same period last year, below $490 million. Our adjusted leverage ratio came in at 2.4 x. We invested $13 million in CapEx with an emphasis on automation, including optical sorters for our leading snap peas program and process enhancements in our fresh cut facilities.
All while maintaining our dividend payout of $0.15 per share as part of our continuing commitment to return cash to shareholders. In October, we launched exciting new higher-margin product offerings in the ready-to-eat and convenience category. I'm proud of the team's commitment to provide wholesome and convenient offerings based on developing value-added products aligned with our deep understanding of consumer insights and trends. In keeping with delivering on diversification and expanded technology solutions, during the quarter, we invested in Decapolis, a start-up technology company that provides blockchain-driven traceability technology for the food industry. The technology focuses on capturing each stage of production from planting to distribution. We believe this will enable our food conscious consumer to see a complete log of product information from farm to table.
During the quarter, we also finalized an agreement with a tech firm to digitize our Network Shipping operation, which we believe will make our ocean logistics more attractive to commercial cargo customers. This will allow us to automate manual processes, including scheduling, contract management, and vessel tracking. Year to date, our Other Products and Services segment has realized significant top and bottom line growth, driven by our commercial cargo services. Although the category is benefiting from transitory logistical pressure, logistical pressures due to market conditions, we remain keenly focused on continuing to expand this double-digit margin offering. On ESG, we recently published our 2021 sustainability report, which shows solid progress towards achieving our 2030 goals, including significant improvement toward the reduction of our Scope 1 and Scope 2 greenhouse gas emissions.
In addition to delivering 95% of our food waste from landfills and having 82% of our global product volume being certified as sustainably grown by third party. In line with our efforts to evolve and improve, this year marks the first time we are reporting in conformance with the Sustainability Accounting Standards Board within the agricultural products for the food and beverage industry. As we close out the fourth quarter, we expect broad-based cost pressures to continue to impact our results, but a more stabilized rate. We don't foresee input costs getting worse from current levels. Having said that, fluctuations in exchange rates are expected to continue to go against us in key selling markets in Europe and Asia.
We are partially hedged against movements in the euro and Japanese Yen through the end of the year, helping us mitigate a portion of the impact. I remain confident in our growth path, grounded on profitable sales, disciplined expense management, digital transformation, and sustainability, all while remaining true to our core mission of high quality, fresh and fresh cut fruit and vegetables. Now I will turn the call over to Monica to talk about the third quarter financials. Please, Monica.
Thank you, Mohammad. Thank you for joining us on today's call. Let's turn to our third quarter 2022 financial results. As noted by Mohammad, net sales for the third quarter of 2022 increased by $49 million or 5% compared with the prior year. Net sales primarily benefited from inflation justified price increases. The increase in net sales was partially offset by the negative impact of fluctuations in exchange rates, primarily versus the euro, Japanese yen, Korean won, and British pound. The negative impact of fluctuations in exchange rates was partially mitigated by our foreign currency hedges. Gross profit for the third quarter of 2022 was $88 million, compared with $49 million in the prior year. The increase in gross profit was due to higher overall net sales and product mix in our fresh and value-added products segment.
The increase was partially offset by the continued impact of higher input costs, which resulted in higher per unit production and distribution costs. Specifically, packaging material, fertilizer, ocean and inland freight, fuel and labor were all higher compared to prior year. Adjusted operating income was $41 million compared to close to breakeven in the prior year. The increase in adjusted operating income was primarily due to higher gross profit and to a lesser extent, lower SG&A expenses. Adjusted FDP net income was $26 million, compared with $1 million in the prior year. Diluted earnings per share was $0.69, compared with diluted earnings per share of $0.03 in the prior year. Adjusted diluted earnings per share was $0.54 compared with $0.01 in the prior year.
The difference between GAAP and adjusted diluted earnings per share during the quarter of 2022 relates to a $10 million one-time benefit related to a reduction in the North America environmental reserve. Adjusted EBITDA for the third quarter was $58 million, compared with $26 million in the prior year period, and corresponding adjusted EBITDA margin was 5.5% compared with 2.6% in the prior year. Let's now turn to the segment results, beginning with our fresh and value-added products segment. Net sales for the third quarter of 2022 remained relatively in line with the prior year at $600 million. Having said that, the segment realized higher net sales across key product categories including pineapple and fresh cut fruits related to inflation justified price increases.
The increase was predominantly offset by lower net sales of avocados and fresh cut vegetables as a result of lowered sales volumes. Net sales were also negatively impacted by fluctuations in exchange rates in Europe and Asia. Fresh and value-added product segment gross profit for the third quarter of 2022 was $55 million, compared with $42 million in the prior year. Segment gross profit benefited from product mix of higher margin categories, including pineapples and prepared foods. The increase in gross profit was partially offset by higher costs across the board. Gross margin for the segment increased to 9.2% compared with 6.9% in the prior year. Moving to our banana segment, net sales for the third quarter of 2022 increased by $23 million compared with the prior year.
The increase in net sales relates to higher per unit sale prices due to a combination of inflation-justified price increases, contractually indexed fuel and freight surcharges within certain of our contracts, our strategic sourcing decisions in response to market conditions, and an atypical seasonally low industry supply in certain markets in the third quarter of 2022. In contrast, in the third quarter of 2021, the banana segment was impacted by excess industry supply. The increase in net sales was partially offset by the negative impact of fluctuations in exchange rates in Europe and Asia. Banana segment gross profit for the third quarter of 2022 was $23 million, compared with $4 million in the prior year.
The increase in gross profit was primarily driven by the higher net sales, partially offset by the higher per unit distribution costs, including ocean and inland freight, and higher per unit production costs. Gross margin increased to 5.8% compared to 1% in the prior year. Lastly, net sales in our Other Products and Services segment increased by $27 million or 70%, mainly due to higher net sales of third-party freight services in North America. Our fleet of vessels has enabled the expansion of our commercial cargo services, which continues to benefit from elevated shipping rates and demand due to market conditions. Gross profit increased by $7 million as a result of higher net sales of third-party freight services. Now moving to selective financial data. Selling, general, and administrative expenses was $47 million, compared with $48 million in the prior year.
The decrease was primarily due to lower advertising expenses. Net interest expense was $6 million or $1.4 million higher than the prior year due to higher interest rates and higher average debt balances. Other expense, net for the third quarter of 2022 was $9 million, compared with $2 million in the prior year. The increase is primarily due to higher foreign currency losses. Income tax expense was $3 million, compared with a benefit of approximately $7 million in the prior year. The increase in tax was mainly due to increased earnings in certain higher tax jurisdictions, along with the impact of a $1.5 million provision for foreign earnings deemed not permanently reinvested. For cash flows, year to date, we generated net cash from operating activities of $106 million, compared with $152 million in the prior year.
The decrease was primarily due to higher working capital and lower net income compared with the first nine months of 2021. Long-term debt remained relatively in line in both periods, increasing by $9 million to $486 million at the end of the third quarter of 2022, compared with $477 million at the end of the same quarter last year. Our optimization program announced in the second half of 2020 is of utmost priority to us. As a reminder, the initiative is comprised of a deep dive assessment to identify and dispose of non-strategic and underutilized assets. Our objective is to improve return on assets, asset utilization, and in turn, reduce operational expenses. Since the program was announced, we have generated $65 million in cash proceeds.
Although we did not have meaningful asset sales in the third quarter, we do expect progress towards achieving our target of $100 million in cash proceeds to continue. Our focus is on selling these assets at a good value. As it relates to capital spending, we invested $36 million in capital expenditures in the first nine months of 2022, compared with $83 million in the prior year period. Prior year capital spend included the final payments on the purchase of 2 of our refrigerated container ships. The spend this year has focused on improvements to our banana and pineapple operations in Central America and Kenya, and automation in our production facilities across our operations.
As announced this morning in our financial results press release, our board of directors declared a quarterly cash dividend of $0.15 per share, payable on December 9, 2022 to shareholders of record on November 16th, 2022. This concludes our financial review. We can now turn the call over to Q&A. Cheryl?
To ask a question, please press star one on your telephone keypad. Your first question is from Jonathan Feeney of Consumer Edge. Please go ahead. Your line is open.
This is David Assia for John. My question is, what role has the huge move in currency played in your profits, both in this quarter and potentially in 2023? Is the strong dollar a net positive or negative, do you think? I know you have a lot of costs in currencies that are a bit weaker, but there is revenue offsets, certainly from the euro as well.
I'm sorry. Could you repeat the question? It was hard to hear you.
Go ahead.
Yes. What role has the huge moves in currency played in your profits both this quarter and potentially in 2023?
The currency impact was significant in the quarter due to the euro and the GBP being weaker than last year. We do have some hedges that offset partially the impact through year-end. At gross profit, it was approximately $14 million negative impact.
Okay, great. I have a follow-up question. FDP has a tremendous amount of strategic assets that show this quarter their ability to deliver value in an inflationary environment. Considering the power of inflation on your competitors without so many assets, is it possible that a sustaining inflationary environment is a net positive for you?
We are working towards optimizing our assets. That's definitely one of our priorities. We will continue to sell underutilized or non-productive assets.
Thank you.
Your next question is from Mitch Pinheiro of Sturdivant & Company. Please go ahead. Your line is open.
Hey, good morning. First, I want to start with the banana business for a second. From a sales perspective, you know, obviously you had some inflation-justified price increases. Can you? What level were these price increases?
We cannot disclose, Mitch, what level of price increases, but we are pricing our bananas as we speak at a profitable level. We are not planning to sell any bananas at a loss from going forward.
Okay.
You know. We are just rationalizing our supplies to our demand.
What did you do? You talk about, you know, strategic sourcing decisions. What were those strategic moves that you made?
Matching demand with supply in a much more sensible way, as well as trying not to have any excesses at any time of the year.
Well, when I, you know, when I look back, you know, historically, I know you've been sort of trying to diversify away from bananas and, you know, you've been focusing on profitable volume growth, I guess across the board, but certainly in the banana business. Bananas seem to have been sort of stuck, you know, in a range. It's not really growing on a revenue number. If you look back five years plus, you know, a long term. Your profitability has been stable, maybe a little lower than you'd like. That right now could be accounted for by, you know, the current environment. Can you talk about the banana business in the context of your overall sort of growth algorithm?
Are bananas gonna be what they are right here? Is this what we should expect going forward? Or do you see growth in that segment?
I believe that would be, you know, kind of, a good assumption. Don't forget, on my last call, I said I believe that the banana prices will reach about $20 a box. As we speak today, the exit price from Ecuador is around $13 just for the fruit alone. Put on it all the other expenses, packaging, forwarding, handling, you name it's about $2.50-$3 more. You are talking about almost $16 FOB. Then you have to put on top of that the ocean freight and other expenses. More or less what I predicted three months ago is almost true today.
I don't believe that the banana, as far as banana traders, as far as banana importers, with the present expenses and costs of producing bananas considering fertilizers and other inputs, you know, has been mentioned with Monica a while ago, this will not allow anybody to. Certainly not for Fresh Del Monte that will go and sell bananas at a loss without a meaningful return, on the investment. I believe that this percentage that you saw, on our banana, you know, will, you know, we'll maintain or we'll strive to continue to maintain this percentage.
Last question on the bananas or two more questions actually. Broadly speaking, is banana consumption still stable? Is it, you know, flat to up 2%-ish globally?
I believe yes. If you look at the banana today, it's the cheapest item on the shelf in any supermarket around the world. You know, I mean, considering other fruits and products, vegetables. Bananas today is the cheapest still. In this inflationary period, I think there will be more kind of focus on bananas, for consumers rather than buying other products, you know, as priority. Even considering, you know, the increasing cost or increase of prices of bananas today, we are still far cheaper than any other product in the market.
Okay. You know, you spoke about the low industry supply in this quarter. How's the supply look for the next 3 to 6 months in your view?
It will be more or less in line. You know, don't forget that we still haven't gone out of the risk of hurricanes. You know, we're talking today, and there is a hurricane already very approaching the east coast of Central America. We don't know what will happen in the next 24 hours. That would be detrimental if there is any impact happens during the next 24 hours.
Right.
That can be very detrimental. Yeah.
Sure. Just moving on to the fresh and value-added segment. How has Mann Packing done? Is it recovering from you know, the demand impact from the pandemic? Can you talk a little bit about the progress you're making there?
It's definitely improving week by week, and we are confident that by next year that a new page will take place.
From a food service point of view, have you recovered to pre-pandemic levels?
Not yet, but we are improving week by week, as I said, Mitch. We are confident that hopefully by next year, we should be able to recover most. We have to identify, you know, recover what. We don't want any loss-making products to be included. We will be looking at the bottom line, and we will be looking at profitability. That's what we will be looking at.
Okay.
I mean, don't forget that, as we saw, water is becoming an issue and inputs are becoming an issue. Commodity prices in the last few weeks has skyrocketed, and that was because of certain issues that happened in the last few months. I don't think this will change. I think that more rationalization is taking place in the producing areas. I believe things are changing. You know, as far as we are, we believe that we have already got the business under control through different methods, be it on the administration management level or on the product selection and production.
Don't forget that we have integrated Mann into Del Monte about a few weeks ago, and that has definitely will take a big kind of improvement going forward.
Okay. I guess last, just last question. On your commercial cargo services, is that something that can grow from here? Do you have excess capacity beyond what we're seeing in the numbers today, or is this something that sorta just becomes like a flat line growth, moving forward?
No, I think that our target is to have annual growth. Don't forget, we are not just focusing on ocean freight. We are a 3PL company, you know, where we can provide services door to door. I cannot discuss this here on this call, but we do have a lot of plans for our services sector segment going down in the future.
Okay. That's it for me. Thanks for taking the questions.
Thank you, Mitch.
There are no further questions at this time. I will now turn the call over to management for closing remarks.
I would like to thank everyone today for joining us, and I look forward to talk to you on our next call, and I hope that it will be even better news. Thank you very much, and have a good day.
Thank you.
This concludes today's conference call. Thank you for your participation. You may now disconnect.