Good day, and welcome to Fresh Del Monte Purdy's Second Quarter 2021 Earnings Conference Call. 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 After the speakers' presentation, there will be a question and answer session. For opening remarks and introductions, I would like to turn the call over to the Vice President, Investor Relations with Fresh Del Monte Produce, Christine Camilla. Please go ahead, Ms.
Camilla.
Thank you, Brian. Good morning, everyone, and thank you for joining our Q2 2021 conference call. As Brian mentioned, I'm Christine Cannella, Vice President, Investor Relations with Fresh Del Monte Produce. Joining me in today's Our discussion are Mohammad Abu Ghazaleh, Chairman and Chief Executive Officer and Eduardo Vazera, Senior Vice President and Chief Financial Officer. I hope that you had a chance to review the press release that was issued earlier this morning via Business Wire.
You may also visit the company's website at This conference call is being webcast live on our website and will be available for replay after this call. Please note that our press Our set forth in the press release we issued today and on the company's website at freshdelmonte.com under the Investor Relations tab. I would like to remind you that much of the information we will 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 safe harbor laws. 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, August 4th, and we have no obligation to update any forward looking statement we may make.
With that, I am pleased to turn today's call over to Mohamad.
Thank you, Christine. Good morning, everyone. During the Q2 of 2021, we delivered strong financial results with growth throughout several key areas of our business, which will be highlighted by Eduardo. However, As it was reported this morning, our gross profit for the quarter increased 40% from last year and gross margin increased from 7.2% and the prior year period to 9.6% in the Q2 of 2021. Gross margin is an important component of our strategic transformation to a value added global food company.
And this is reflected in our strong year over year operating income and net income. Like many other companies, we are facing unprecedented disruptions in global supply chains and shortages of labor resulting in significant cost increases. During the Q2, we experienced inflation in labor, fuel, inland freight, packaging, production and procurement costs. We anticipate these inflationary pressures will remain for the near term and have taken proactive measures to counter the impacts on our results, including a comprehensive review of our pricing strategy and sourcing plans for the remainder of the year. We made additional progress with our global operational initiatives as well during the quarter.
For example, in Europe, we restructured our fresh operations in France that led to increased efficiencies and cost savings. We entered into a licensing agreement with a U. K. Retailer to brand frozen fruit and chilled juices, which offers a new revenue opportunity for us in Europe that can be expanded to other markets in the Middle East and Africa. As you may have seen in our press release this morning, as a result of our strong cash position, our Board of Directors approved an increase in our quarterly cash dividend to $0.15 per share.
As you know, The second half of the year is historically a tougher market for our industry. And this year, in Before I turn the call over to Eduardo, I am pleased to share that we will soon publish Fresh Del Monte's Annual Corporate Responsibility and Sustainability Report detailing our guiding principles And continued progress since our last sustainability update. We look forward to sharing the report with you. At this point, I will turn the call to Eduardo to talk about the Q2 financial results. Eduardo?
Thank you, Mohammed, and good morning, everyone. We delivered strong results in the Q2 of 2021 compared to the prior year period despite inflationary and cost pressures and other unfavorable economic conditions, including labor shortages. Now let's review our Q2 of 2021 results. Net sales increased $49,000,000 or 5 percent to $1,142,000,000 compared with the prior year period, primarily driven by our fresh and value added business segment with Favorable exchange rates benefiting net sales by $17,000,000 Adjusted gross profit increased $23,000,000 or 25 percent to $112,000,000 and our adjusted gross profit margin increased 160 basis points from 8.2% in the prior year period to 9.8% in the Q2 of 20 The increase was driven by higher gross profit in all of our business segments. Adjusted operating income Increased $17,000,000 or 39 percent to $61,000,000 compared to prior year period, mostly driven by increased gross profit.
And adjusted net income increased $21,000,000 or 82% to $47,000,000 compared with the prior year period. We achieved diluted earnings per share of $0.99 comparing diluted earnings per share of $0.38 in the prior year period. Excluding nonoperational and nonrecurring items, We delivered adjusted diluted earnings per share of $0.98 compared with adjusted diluted earnings per share of $0.54 in the prior year period. Adjusted EBITDA increased 32% And adjusted EBITDA margin increased 150 basis points from 5.8% in the prior year period to 7.3% in the Q2 of 2021. Let me now turn to segment results beginning with our fresh and value added product Net sales in our Pressure Value Added Products segment increased $38,000,000 or 6% Compared with the prior year period, the primary drivers of the variance were increased demand in our pineapple, Fresh cut fruit and fresh cut vegetable product line as several countries began to release COVID-nineteen restriction.
As an offset, we were impacted by the severe rainstorms in Chile in the Q1 of 2021 that resulted in lower volumes in our nontropical fruit crops and lower sales volume and per unit sales prices for avocados as a result of excess supply in North America. For the quarter, Adjusted gross profit in our fresh and value added products segment increased 28% to $59,000,000 The primary drivers of the brands were in pineapple, increased sales volumes and higher prices in all regions along with the lower per unit ocean freight costs compared to the prior year period due to our new fleet and container ships. In Fresh Cut Fruit and Prepared Products, gross profit margins achieved Low and high teens, respectively. Fresh cut vegetables in our landpacking business were impacted by Higher per unit products and distribution costs, partially offset by higher per unit sales prices And avocado gross profit decreased as a result of lower sales volume and prices due to increased supply in the markets. Net sales in our banana segment decreased $3,000,000,000 to 427,000,000 While adjusted gross profit increased 16% or $7,000,000 during the quarter, The primary drivers of the variance were lower net sales in the Middle East and to a lesser extent North America, partially offset by higher net sales in Europe and Asia.
Higher per unit sales prices and lower per unit ocean freight costs in North America Europe drove the increase in gross profit. These improvements were partially offset by higher fuel, labor, Inland freight, packaging, production and procurement costs. Now moving to selected financial data. Selling, general and administrative expenses increased to $6,000,000 to $51,000,000 compared with $46,000,000 The Q2 was favorable by $11,000,000 compared with an unfavorable effect of $1,000,000 in the prior year period. Interest expense net for the 2nd quarter at $5,000,000 compared with $6,000,000 in the prior year period, mainly due to lower interest rates and lower average debt balances.
The provision for income tax was $5,000,000 during the quarter, compared with $4,000,000 in the prior year period, primarily due to increased earnings in certain jurisdictions. During the quarter, we generated $140,000,000 in cash flow from operating activities compared to $111,000,000 in the prior year period. The increase was primarily attributable to higher net income and lower cash outflows associated with accounts payable and accrued expenses. As it relates to capital We invested $70,000,000 in capital expenditures in the 1st 6 months of 2021 compared with $36,000,000 in the prior year period. Our investments were mainly related to the final 2 new Container vessels we received during the 1st 6 months of 2021 along with expansion and improvements to our facilities in North America and Asia.
As of the end of the quarter, we have received cash proceeds of $51,000,000 in connection with asset sales under the asset optimization program, of which approximately $40,000,000 was received in 2020. The cash proceeds during the Q2 of 2021, primarily related to the sale of surplus land in the Middle East and the vessel. Total debt decreased from $542,000,000 at the end of 2020 to 4.7 $4,000,000 at the end of the Q2 of 2021. Based on a trailing 12 month period, Our total debt stands below 2x adjusted EBITDA. 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 September 10, 2020 to shareholders of record on August 18, 2021.
This is an increase of $0.05 per share from the dividend we paid to shareholders in June 2021. This concludes our financial review. We can now turn the call over for Q and A. Brian?
Okay. And we now have our first question coming from the line of Jonathan Sweeney with Consumer Edge.
Hello. Thank you very much. Obviously, terrific results, nice and otherwise mixed earnings season. I guess a couple of questions. So It seems like we're in a sweet spot here where supply shortages, at least For bananas anyway, have eased and yet there's still a reasonable amount of pricing power and claim around like, can you give us any outlook on Why for the second half?
Because usually the cash flow and profit dynamics of that business are radically different lower And I wonder as we model if that's still going to be the case this year given the extraordinarily good dynamics that seem to be out there today. That would be my first question. And secondly, Do you think you mentioned Mohammed, you mentioned in your prepared remarks this unprecedented supply chain pressure. Is everybody feeling that? Will that Flow through to pricing in all tropical fruit in your opinion?
Or is that this is a very different kind of industry, right? It's an than it does with global inflation. So any perspective you have on your pricing power in light of those cost pressures, I'd appreciate
it. Thank you, Jonathan, and good morning. As far as the banana is concerned, Actually, the first half of the year, we were impacted mainly by the hurricane and That impacted our production in Guatemala and in a lesser extent in Costa Rica as well as the competition. And this has created the situation where we had to go and buy maybe extra food from Ecuador, where we had to And force our force majeure price increase during the first half of the year. And that actually is the situation.
It wasn't A big luck kind of supply shortage. We had some tightness in the market in the 1st few months and the main issue was the damages, huge damages that happened to the That happened to the farms and to the infrastructure. So supply of banana is constant and it's available in the market. There is no shortage in that side. And as we speak, we know that there is a pressure On the pricing in the banana in the market, because of the supply and because of the leverage Of the retailers over the industry players and it's unfortunate that we cannot find A mutual kind of way to keep us as producers, marketers to survive in this kind of environment.
Now talking about other fruits and other tropical fruits, The price the cost pressures, it goes throughout the industry, not only just for bananas, but Across the industry for anything that we talk about packaging, shipping, Materials, fertilizers, everything that you are talking, we use into Our inputs in our kind of packaging and production in the field, that has been impacted. However, we have taken several steps by increasing on the fresh cut price on fresh cut supply. We Implemented price increases in the last couple of months to offset some of this Cost increases, which has helped us somehow. And as we go forward, we are looking at different Ways to reduce the impact of the cost itself as well as hoping to be able to reach with our customers ways to Mitigate these cost increases by increasing our prices as well.
So it sounds like it affects everyone in the industry and you're confident that since it affects everybody that pricing will get through, Generally speaking?
Well, we hope so. We are doing our best. But
You and me both. I mean,
it's a joint effort. It's a mutual I think it's a mutual benefit
Well, let me ask you one follow-up please, Mohit, and then I'll pass it on, please. The retail environment has changed quite a bit. You're seeing you mentioned I mean, I've been around a long time. I know it's not it's had its ups Don't have any other choices. Other places, you have these contracts that sometimes work in your favor, but a lot of times they don't.
Has COVID, The new volume, the sudden success a lot of these retailers have had like and their urgency, I've heard from a lot of More consumer staples, less fresh product, more consumer staples players that grocers have been much, much more friendly as far as Carrying inventory, guaranteeing inventory, they're scared to be out of inventory because they left 1,000,000,000, probably 1,000,000,000 on the table without Stock, when people rush into these grocery stores and they really maybe after years of reducing working capital or maybe going back the other way. Has it become a more friendly retail Arm anyway or is it unchanged?
Well, unfortunately, I have to say that it has been unchanged, even though that we have been Up to the maximum by supplying our retailers with the consistent supplies every single day of the During last year, during April, May, June last year, We had to dump fruit in the region of $30,000,000 to $40,000,000 that was not because of the Kind of slow pace at the supermarket. In the 1st couple of months, on the 1st month or 2, there was a huge rush To the supermarkets and buying stuff to stock. And then all of a sudden, there was a sudden drop in demand and sales. And we were stuck with a huge volume of Products, mainly bananas and pineapples, melons and that though we have contractual relationships And but the retailer will tell you we cannot sell it because we don't have the buyer. So we had to dump about $30,000,000 to $40,000,000 in these products Last year that we had to absorb our sales.
That was in 2020. So this is the kind of things that we what we are doing, as a matter of fact, as a company as well, and I mentioned this in my script, Is that we are moving towards more food items into our markets where we own the brand of Del Monte in Europe, in the Middle East and Africa, which we have quite a success actually during the last 7, 8 months, and we are going to Leverage on that and really bring back our brand into the food side of the business. I believe that this is a very big bright spot for us going forward, which will Really stabilized the business in a better way.
Yes. For what it's worth, I completely agree. It's been a long time, but you've made a lot of progress too. So congrats on that and thanks for the time and nice quarter again.
Thank you very much.
I see that there are no more further questions. I'll turn the call over to Mohammad Abu Bazzawi.
I would like to thank everyone for attending this call and wish you a good day and hope to speak to you soon. Thank you very much everyone.