Good day, everyone, and welcome to the Fresh Del Monte Produce First Quarter 2021 Earnings Conference Call. Today's conference call is being broadcast live over the Internet and is also being recorded for playback purposes. After the speakers' presentation, there will be a question and answer for opening remarks and introductions. I would like to turn today's call over to the Vice President, Investor Relations with Fresh Del Monte Produce, Christine Canela. Please go ahead, Ms.
Canela.
Thank you, Tequila. Good morning, everyone, and thank you for joining our Q1 20 2021 Conference Call. As Sekhila mentioned, I am Christine Kinalla, Vice President, Investor Relations with Fresh Del Monte Produce. Joining me in today's discussion are Mohammad Abu Ghazali, Chairman and Chief Executive Officer and Gorda Vadira, Senior Vice President and Chief Financial Officer. I hope that you had a chance to review the press release that was issued recorded earlier this morning via Business Wire.
You may also visit the company's website at freshdelmatti.com recorded for a copy of today's release as well as to register for future distribution. This conference call is being webcast live on our website recorded and will be available for replay after this call. Please note that our press release and our call today include non GAAP measures. Recorded. Reconciliations of these non GAAP financial measures are set forth in the press release we issued today recorded and on the company's website at freshdelmoni.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 recorded within the provisions of the Federal Securities State Department Law. In today's press release and in our SEC recorded. We detail our material items. With that, I'd like to turn the call over to Ramon.
Thank you, Christine. Good morning, everyone. In the Q1 of 2021, we delivered strong profits across all of our business segments, while net sales were slightly lower year over year. Gross profit increased 53% from last year's Q1. Net income increased 228% to $43,000,000 or diluted EPS of $0.90 compared with net income of $30,000,000 Our diluted EPS of $0.27 a year ago.
We believe that these results reflect the resilience of our company and are a demonstration of the initiatives we implemented in 2020 To further strengthen our operating model and improve working capital. Thanks to our sales, marketing and operations teams reorganization in North America. We have further optimized the way we work, And our overall organization has done an excellent job despite the market challenges. I assume you all know what is happening in the global markets. The structure of the economy has changed.
We recognize the new economic reality and market challenges we face, specifically The inflationary pressure we are facing on all fronts, which is forcing us to increase our prices. We intend to continue to proactively manage and anticipate these challenges as we have done in the past By taking decisive actions to counterbalance any adverse conditions to our business. As we move forward, We intend to continue to operate with agility so that we can quickly respond to market changes as they come. What you see today is only the beginning of our potential. Now I will turn the call to Eduardo to talk about the Q1 financial results.
Eduardo, please.
Thank you, Mohammed, and good morning, everyone. As you may have seen from our press release this morning, we had a strong Q1, And we are pleased with how well we performed against the backdrop of the persistent global COVID-nineteen pandemic and the impact on fruit supply due to the 2 hurricanes in Guatemala in the Q4 of 20 We also dealt with rising inflationary pressures during the Q1. Now let's review our Q1 of 2021 Net sales decreased $29,700,000 or 3 percent to $1,080,000,000 compared with the prior year period with favorable exchange rates benefiting net sales by $16,000,000 The decrease was primarily attributable to lower net sales in our fresh and value added and banana business segments. Adjusted gross profit increased 39% to $107,000,000 And our adjusted gross profit margin increased to 10% compared with 7% in the prior year period. We benefited from increased profitability in our fresh and value added business segment, partially offset by higher fruit production, Procurement and Distribution Costs.
However, I would like to point out that if you apply The adjusted gross profit margin
for the
fresh and value added product segment of 8.7% To the $19,000,000 of net sales impacted by COVID-nineteen in this segment, we estimate we would have delivered an additional $1,700,000 in adjusted gross profit. Adjusted operating income increased 140 And adjusted net income increased 154 percent to $42,000,000 compared with the prior year period. We achieved diluted earnings per share of $0.90 compared with diluted earnings per share of $0.27 in the prior year period. Excluding nonoperational and nonrecurring items, we delivered adjusted diluted Earnings per share of $0.88 compared with adjusted diluted earnings per share of $0.34 in the prior year period. Adjusted EBITDA increased 61%, and adjusted EBITDA margin increased 300 basis points recorded when compared with the prior year period.
Let me now turn to segment results, beginning with our fresh and value added product segment. 5% compared with the prior year period. The primary drivers of the variance were lower sales volumes of melons As a result of the hurricanes in Guatemala, the impact of COVID-nineteen to net sales in January February in our fresh an increase in avocado volume, which was offset by lower per unit sales price That impacted the industry, an increase in pineapple volume in most of our regions and an increase in net sales in our prepared food products Pressure Value Added Products segment increased 9% to $55,000,000 and adjusted gross profit margin increased by 100 basis points. During the quarter, we began to benefit from the actions we took in 2020 Optimize our operations, primarily in the following product lines: fresh cut fruit, melons, avocados and our Prepared Food Products. Fresh cut fruit margins recovered back to double digit.
Rationalization in our domestic melon operations and higher per unit sale prices helped offset the damage from the hurricane. Avocado gross profit margin doubled during the quarter and achieved double digit. Prepared food products Margins achieved high teens. We also pursued volume expansion during the quarter in the following product lines. Pineapple volume increased 22% and avocado volume increased 12%.
Gross profit in our nontropical product line decreased primarily in grapes as a result of damage caused by severe rainstorms
to some
of our farms in Chile, which resulted in a $3,100,000 inventory write off. Our Mann Packing business was impacted by lower sales volume in our full service distribution channels, which drove higher per unit product costs. Net sales in our banana segment decreased $9,000,000 to $418,000,000 while adjusted gross profit increased 93% Or $23,000,000 during the quarter, primarily driven by lower net sales in North America and the Middle East, mainly as a result of decreased sales volume, partially offset by strong demand in Asia. Overall volume decreased 8%. Pricing increased 7%, which offset an increase in production and procurement costs due to the impact of hurricanes Eta and Yota in Guatemala as well as inflationary pressure on cost of goods sold.
Now moving to selected financial data. Selling, general and administrative expenses decreased $4,000,000 to $49,000,000 compared with $53,000,000 in the prior year period. The decrease was primarily due to cost saving initiatives in our North America region that resulted in reduced promotional The foreign currency impact at the gross profit level For the Q1 was favorable by $13,000,000 compared with an unfavorable effect of $6,000,000 in the prior year period. Interest expense net for the Q1 at $5,000,000 was in line with the prior year period. The provision for income taxes was $11,000,000 during the quarter compared with income tax $300,000 in the prior year period.
The increase in the provision was due to Sorry, the increase in the provision for income tax of $10,700,000 is primarily due to increased earnings in certain jurisdictions. During the quarter, we generated $47,000,000 in cash flow from operating activities compared to $2,000,000 in the prior year period. The increase was primarily attributable to higher net income And higher balances of accounts payable and accrued expenses, principally due to our optimization efforts associated with the working capital. As it relates to capital spending, we invested $34,000,000 in the Q1 compared with $17,000,000 in the prior year period. Our investments were mainly related to our new refrigerated container ships, $42,400,000 in connection with our asset sales under the asset optimization program, Of which approximately $40,000,000 was received in 2020.
The gain during the Q1 of 2021 primarily related to a gain on the sale of a refrigerated vessel. We believe we are on track To achieve the $100,000,000 program by the Q1 of 2022. We paid down our long term debt by $8,000,000 resulting in a total debt balance of $534,000,000 And based on a trailing 12 months, our total debt to adjusted EBITDA ratio stands at 2.4 times. As announced this morning in our financial results press release, our Board of Directors declared a quarterly cash dividend of $0.10 per share payable on June 11, 2021, to shareholders of record on May 19, 2021. This concludes our financial review.
We can now turn the call over for Q and
your first question or comment comes from the line of Jonathan Feeney with Consumer Edge.
Thank you very much and good morning, Deborah. Very nice results, obviously. My first question is on It strikes me that banana volumes are down, avocado volumes are down, major product categories. Did you Just do a better job, but yet gross margins are up despite all that deleverage even on an item basis. Did you do a better job?
Just was it just the case that this time last year you got caught long with a lot of stuff? Did a better job procuring more carefully, did you have better pricing power? How did all that work? Because ordinarily, when volumes are down, there's fixed Cost in the business and you see margins get hit. And I realize it's an easy compare, but even if you go to 2 years ago, this was some good execution.
So I'd love your comments on that and Maybe how that might continue or not continue into the Q2?
So Jonathan, just to clarify So you asked about bananas and avocados. So banana volume went down, but avocado volume went Yes, net sales was impacted mainly because of overall industry prices in avocado went down, and this was a continuing trend as compared to last year.
All right. I'm sorry, I misspoke. Sales were down, but volumes Okay, got you. Okay.
Yes. And I'll follow-up on Eduardo's answer is that this is not A hiccup or just sheer luck. This is a very, very concentrated work by our team to achieve these results through better efficiencies, through better optimization of our assets, through better planning and execution. So this is an exercise that is ongoing and improving as we go forward.
Ordinarily, Mahali, currency Plays a pretty decent role in your profitability, particularly this time of year as it starts to relate to Europe. Was currency Factor in your ability to achieve pricing in Europe or just broadly in bananas. And that's really where you got You almost doubled profitability there.
No, but I mean, we have the euro was quite low for several years, as you know. Outstanding as well as all the foreign currencies really have strengthened against the dollars starting end of or beginning this year. So I don't believe that this is going to change for the next Foreseeable future. I believe that the currencies will stay more or less at this level going forward, and We do monitor this on a very, very closely. So always, we like to take advantage of Such situations.
Got you. Yes, that makes a lot of sense. So where I'm sorry. Where are you in terms of just focusing in on the pineapple business? Volumes are up, obviously recovered off a low.
Can you give us a sense how much of your are you growing all your pineapples internally now? Is there any external sourcing you had to do? And where are you on that, just pineapple
Now don't forget that we produce pineapples in 3 continents. We produce apples in Costa Rica. We produce Pineapples in Kenya as well as in the Philippines. So we cover 3 different continents for different markets. And as of almost last year, beginning of last year, Kenya was mainly producing for our canning operations.
Our operations in Kenya from being just a canned operation into being a can as well as fresh exports, fresh and we have been doing an extremely good job there for our fresh pineapple from Kenya into the especially into the Middle East and Europe because of the logistic proximity and the Quality differentiation between the other locations. So we have been doing very well from Costa Rica, from Kenny Anne from the Philippines to the different markets. At the same time, we have also developed new kind of categories in the pineapple itself. So that has improved the margins And don't forget as well, we are getting into the pink money grow down, Which is still in the very early stages in terms of volumes, but with very, very high margins in this category, which is Exclusive, of course, to Fresh Del Monte.
But you were able to I guess, what I'm asking is you were able to support all of that outsized Growth year over year with your own volume or did you have to, because of all the demand, have to buy externally?
No. We have our growers that have been
with us for And these are still there. I would say, I mean, in Kenya, it's 100% our production. In the Philippines, it's 100% our production. In Costa Rica, we have about 20% outside growers. This has been long term, have been there with us for almost 20 years or so.
So this is Where we stand?
Got you. Okay. So it sounds like you have a handle on that. What about your I mean, with these license operations, the cafes, the food service, obviously, You're thinking about you put some money into and had some plans to expand in foodservice in North America a little bit and that timing there is tough. Probably on hold, but where do we stand on that?
Are we going to push forward with that in the next year or so?
That's what we are hoping for. 1st, the flagship It's actually in our headquarters in Correvandos, and we are seeing very promising results. We're not going to go any further until we consolidate and test the model, the concept in a way that will give us confidence and assurance that this will be a successful concept, and then we will roll it
Now how about more broadly with I guess it's 3 joint ventures you have, right, with other DelMonte license holders For different categories of products in particularly North America. I mean, where do we stand with the development Some of those beverages and other value added products. Is this something we're going to move forward with? Can you where do we stand with that?
Not really. I mean, we are focusing on our between us and Del Monte Food You know that we have had an agreement and kind of settlement in 2017, which is working very well for both parties, and We have come to an agreement where we will each will focus and concentrate on his areas of expertise and knowledge. So that's where we are focusing on value added products for ourselves in the fresh sphere and the Healthy and Wellness area.
I see. So, okay. So, no real I wouldn't anticipate any big product change, Product mix change in North America, although you do technically have the right to do that now, correct?
Yes. And we are actually in the midst of new product developments and new offerings to the market. And So we will be coming with new products in the next few months and the new offerings to our customers.
I got you. And let me thank you very much, Brian. Let me wrap up with an old favorite. When I look at the last 5 years average and with the year ended 2020, EBITDA is something like $216,000,000 adjusted EBITDA. That's the average over 5 years.
I'm pretty sure the 10 year average, I'm not in front of a machine right now, but I'm pretty sure that's higher. Do you I mean, we've been spending a lot on CapEx. We've had a lot more opportunities. I mean, should the next 5 years average EBITDA be Same, higher, significantly higher, like how would you think about that? Because I've always been under the understanding that Everything you spend above maintenance CapEx is something that was going to drive that number forward.
And it's tricky, I realize, because there's a $100,000,000 window there of volatility, and COVID made that worse. But now that you're back on the upswing, I guess I'm just trying to think about what would be a what's the average EBITDA for this company? I mean is it higher than the last 5 years do we think? Same, lower? I mean, what comments could you make?
What do you want me to say? Of course, I'd like to be higher. I mean, I would never go slower.
What would I like you
to say? I don't know. I would like
to be better where I am today. What do you want
me to say? Well, let me phrase it this way then. Based on the investments you've made and where you stand right now, has nothing changed? Is this company A higher average EBITDA company for the next 5 years than the last 5 years.
I believe so for one reason because with the new container ships that we have built, That has given us a very, very tremendous leverage in terms of our logistics and future operating income, and that's As far as I can go.
Okay. That's helpful. And certainly, I mean, you were making the plans before all this Happened, but that certainly seems extraordinarily well timed from the time when you said about these plants to what the value of those kind of logistics are today. So
And there are no further questions at this time. I will now turn the call over to Mr. Mohammad Abu Ghazali for closing remarks.
Thank you. I would like to thank everybody, whoever is on this call, and I wish you well for today and stay safe and hope to talk to you on our next Q2 call sometime end of July. Thank you very much. Have a good day.
Recorded. Thank you for your participation. This does conclude today's conference call. You may now disconnect.