Dole plc (NYSE:DOLE) Q4 2023 Earnings Call Transcript February 29, 2024
Dole plc beats earnings expectations. Reported EPS is $0.16, expectations were $0.03. DOLE isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Hello, everyone. Welcome to the Dole plc Fourth Quarter and Full Year 2023 Earnings Conference Call and Webcast. Today’s conference is being broadcast live over the internet and is also being recorded for playback purposes. Currently, all participants are in a listen-only mode. After the speaker’s presentation, there will be a question-and-answer session. For opening remarks and introductions, I would like to turn the call over to Head of Investor Relations with Dole plc, James O’Regan.
James O’Regan: Thank you. Welcome, everybody, and thank you for taking the time to join our fourth quarter and full year 2023 earnings conference call and webcast. Joining me on the call today is our Chief Executive Officer, Rory Byrne, our Chief Operating Officer, Johan Linden; and our Chief Financial Officer, Jacinta Devine. During this call, we will be referring to presentation slides to supplement our remarks, and these, along with our earnings release and other related materials are available on the Investor Relations section of the Dole plc website. Please note, our remarks today will include certain forward-looking statements within the provisions of the federal securities Safe Harbor law. These reflect circumstances at the time they are made, and the company expressly disclaims any obligation to update or revise any forward-looking statements.
Actual results or outcomes may differ materially from those that may be expressed or implied due to a wide range of factors, including those set forth in our SEC filings and press releases. Information regarding the use of non-GAAP financial measures may be found in our press release which also includes the reconciliation to the most comparable GAAP measures. With that, I’m pleased to turn today’s call over to Rory.
Rory Byrne: Thank you, James. And welcome, everybody, and thank you for joining us today as we discuss our results from the fourth quarter and the full year of 2023. Turning firstly to slide 4 and a recap of the key developments in 2023. While 2023 was a year of good progress and positive momentum for Dole plc with the business growing its position as the leading provider of fresh produce in the world. Across the group, there were many new initiatives and innovations to drive the business forward. We launched Dole Organics and the Go Organic brand in Europe, and this has been positively received by customers. Dole Organics complements the Dole Organic banana and pineapple offering already available across Europe and North America.
We launched our premium Golden Selection Pineapple during 2023, and this was very well received by all of our customers and provides a strong base for further planned innovation in this category. We continue to make good progress in consolidating our third-party shipping volumes and managing this key aspect of our operations efficiently. As interest rates remain high, we continue to focus on reducing leverage. During 2023, we realized significant value from the sale of noncore assets such as nonoperational lands in Hawaii and out-of-service vessels. Altogether, we generated cash proceeds of some $84 million from the sale of nonproductive assets, or almost $1 a share and crystallized cash value. This together with our strong free cash flow generation contributed to a reduction in net leverage from 2.8x to 2.1x at the yearend.
Earlier this week, we announced an agreement to sell our 65% interest in Progressive Produce for gross cash proceeds of just under $120 million. We expect the net proceeds from this sale to be approximately $100 million. Progressive business was a discrete part of the diversified Americas and the Rest of the World segment, and this realized a successful exit and an attractive valuation from our initial $30 million investment back in 2016. As announced, we will use the proceeds from this sale to reduce our leverage further. Now turning to slide 5 and a recap of the financial highlights for 2023. We are pleased today to report very strong full year results, achieving an adjusted EBITDA of $385 million from full financial year, which outperformed our initial guidance for the year of $350 million by 10%.
For the full year, group revenue increased by 2.8%, driven primarily by higher pricing. Adjusted EBITDA increased by 6.9%, achieving an adjusted EBITDA margin of 4.7% compared to 4.5% in 2022. This growth was driven by a strong performance in our Diversified Fresh Produce EMEA segment and stable consistent performances in both our Fresh Fruit and Diversified Fruit Americas segment. Adjusted diluted EPS was $1.24 for the full year compared to $1.44 on the prior year with the reduction primarily due to higher year-on-year interest expense. As we continue to emphasize, efficient capital management and allocation are significant priorities first. In this regard, we’re really pleased with our strong cash generation which led to a reduction in net data of over $200 million at the end of 2023.
Our success has been driven by a combination of factors such as good operating performance, a disciplined approach to capital investment, excellent working capital management, and as mentioned earlier, a strong year for the sale of noncore assets. Turning now to slide 7 for our operational highlights and starting with our Fresh Fruit division. While this segment delivered a robust performance in full year with adjusted EBITDA up $209 million which was approximately 2% ahead of 2022. In the fourth quarter, the segment faced an extremely strong 2022 comparative. And taking this into account, we were very pleased with the result delivered. Over the course of 2023, a key growth driver was a strong recovery in our European business after a challenging 2022 along with good profitability in our pineapple business which has benefited from an improving supply-demand balance in the key Costa Rica growing region as well as by the success of our Golden Selection Pineapple in the marketplace.
In North America, our operations are continuing to perform well but did face challenges during the year with intense competition in the marketplace and lower commercial cargo profitability. We also had the impact of higher sourcing costs due to the combination of low production volumes in many world regions and currency pressures in certain sourcing countries. As always, supply and demand dynamics in the banana market and to a lesser extent in the pineapple market remain important variables for the year ahead. Weather is also an important variable on the supply side that we monitor under El Niño conditions increasingly being felt in the current banana production cycles, we are anticipating industry volume to remain low in 2024. That said, we believe we are well prepared to handle this.
Our strong and experienced management team are keenly focused on risk management, driving operational efficiencies and best products which would deliver sustainable growth and profitability. We believe that this approach together with the continuing — will continue to leverage our established and diverse sourcing infrastructure and customer base will allow us to deliver another strong and consistent performance in 2024. Turning to Diversify EMEA and division now. Our Diversified EMEA segment finished 2023 on a very strong note to round up an excellent performance for the full year. The segment delivered significant like-for-like growth in the quarter and full year by benefiting further from improved currency rates. Revenue growth continues to be driven by higher pricing, more than offsetting volume declines across the segment.
With the daily progress while in terms of driving synergies in the EMEA segment as well as being attentive to internal investment and bolt-on acquisition opportunities that can support further expansion across the European marketplace. Overall, we anticipate continued strong performance for our Diversified EMEA segment in 2024 as we continue to leverage our strong market positions, operational integration and investment opportunities. Now on to Diversified Americas. Diversified Americas segment delivered consistent results in the fourth quarter to round on a solid full year performance despite facing some particular challenges during the year. Improved supply chain conditions for our South American export business have led to better operating results in this part of the segment in 2023.
While robust performance in most of our North American operations have also contributed to a strong result. However, the segment has been impacted by challenging performance in our North American berry business and work continues to turn around to profitability of this segment. In the fourth quarter, mainly driven weather patterns have notable impacts in both the timing and volumes of products being exported out of South America. And while overall we’re pleased that our businesses navigating the barge of challenges well in the region, this year’s variability illustrates the complexity of reporting full year numbers in some key business areas that have seasonal peaks close to financial reporting dates, such as, for example, the Chilean cherry business.
As we start into 2024, we remain focused on closing out the current South American export seasons for some of our important products with a strong performance and continuing that momentum to the rest of the year to deliver good growth for the year. Turning to our Fresh Vegetable segment, unfortunately, the process of obtaining antitrust clearance is taking longer than we anticipated. We continue to engage with the Department of Justice, including exploring alternative agreements to address concerns raised. While we continue to believe that the agreement reached with Fresh Express is best for consumers, customers, suppliers, employees, and shareholders, the outcome remains uncertain. Operations and importantly, this business has continued to see an improvement in its underlying performance.
And with that, I’ll hand you over to Jacinta to give the financial review for the fourth quarter.
Jacinta Devine : Thank you, Rory, and good day, everyone. Firstly, turning to the group results on slide 9, we delivered another strong performance in the fourth quarter. Revenue increased $30 million or 1.5% percent to $2.1 billion, primarily due to a positive impact on foreign currency translation. For the full year, revenue was $8.2 billion, which was 2.8% growth on 2022. Adjusted EBITDA came out marginally lower than the prior year, however, as mentioned by Rory, the Fresh Fruit segment performance in Q4 2022 was exceptionally strong. Overall, adjusted EBITDA was $76.9 million for the fourth quarter. And for the full year, it was $385.1 million, 6.9% ahead of 2022. The net income for the fourth quarter was $28.9 million and increased from $13.4 million in Q4 2022.
The increase in net income was driven by higher adjusted EBITDA and, again, on asset sales of $10.7 million. For the fourth year, net income was $155.7 million, a $43.9 million increase from the prior year primarily due to an improvement of performance from operation and higher asset sales, partially offset by higher interest expense following the rise in rates and higher income tax expense, primarily due to one-off noncash tax adjustments in 2022. Diluted EPS was $0.23 in the fourth quarter and for the full year, it was $1.30, again, an increase from 2022. On an adjusted basis, fourth quarter adjusted net income decreased 14% to $14.8 million. An adjusted diluted EPS was $0.16 compared to $0.18 in the fourth quarter of 2022. The decrease was primarily due to the marginal decrease in adjusted EBITDA and higher interest expense.
For the full year, adjusted net income was $118.1 million and adjusted diluted EPS was $1.24 compared to $136.4 million and $1.44 respectively for 2022. The decrease was mainly due to the higher interest and tax expense offset by higher EBITDA. In the fourth quarter, underlying performance within the Fresh Vegetable business continued to improve and pleasingly, the division contributed income of $5.8 million. Starting with Fresh Fruit on slide 11, revenue increased by 1.2%. The increase was primarily due to higher worldwide volume of bananas sold, higher banana pricing in Europe, and an increase in worldwide pricing of pineapples. Offsetting these were lower banana prices in North America and lower worldwide volumes of pineapples sold. The adjusted EBITDA decreased $11 million compared to a strong comparative period.
The decrease was primarily due to higher fruit banana sourcing costs and weaker performance in our commercial cargo business and other diversified products. Turning to Diversified Fresh Produce, EMEA on slide 12, continuing the positive momentum for the first nine months of the year, this segment again performed very strongly in the fourth quarter. Revenue increased 14.8%, driven by price increases and favorable impacts from foreign currency translation and M&A activity. On a like-for-like basis, revenue increased 8.7%. Adjusted EBITDA increased by $10 million. The increase was driven by strong performance within our Dutch, Swedish, and South African businesses, and a positive impact from foreign currency translation of $1.1 million. Finally, turning to Diversified Fresh Produce, Americas and Rest of the World on slide 13, revenue decreased 14.7%, primarily due to lower — to expected lower volumes of cherries due to seasonal timing differences and weather impacts, as well as a continued challenging performance for the berry category in North America.
Adjusted EBITDA was $15.4 million in line with the prior year. The division had a significant recovery in profitability for apples and to a lesser extent kiwis after a challenging 2022. Offsetting this was the impact of seasonal timing differences in the Chilean cherry season and the impact of the performance of the berry category in North America. Turning to slide 14 now to discuss our cash generation, capital allocation and leverage. As Rory mentioned, capital allocation and managing our leverage remains a key focus for the group. We are pleased that at the end of the year, our leverage was 2.1x, a very significant reduction from 2.8x at the end of 2022. The reduction was driven by excellent cash generation across the group, which has reduced our reported net debt by over $200 million.
For the full year 2023, free cash flow from continuing operations was $221 million, driven by strong adjusted EBITDA performance, and good working capital management across the group. We saw a very strong working capital performance in Q4 and in 2023 overall, primarily driven by the unwinding of some of the significant supply chain impacts of the prior year, but additionally due to favorable seasonality at the yearend. In line with previous years, we expect to see a seasonal working capital outflow in the first half of the year as production levels increase and a number of important growing seasons commence. Cash capital expenditure from continuing operations was $26.7 million in the fourth quarter, and this was complemented by the addition of $5.3 million in assets acquired through finance leases.
Full year expenditures included important efficiency projects in our warehousing and processing facilities, as well as ongoing farm renovations in banana farms, new planting and plantains, and other products and ongoing investments in IT and logistics across the group. Overall, capital spend was $87 million in 2023. For 2024, we do anticipate a higher spend as we seek to execute certain projects that were planned for 2023. We expect CapEx from continuing operations to be in the range of $110 million to $120 million in 2024. As we have previously noted, 2023 was a very strong performance for the sale of idle and noncore assets, and we realized gross proceeds of $19 million in the fourth quarter to bring us to a total of $84 million for the full year.
At the end of the year, the combined value of our asset held per sale and actively marketed property was $16 million, and we continue to seek further asset sales in 2024. Interest expense, including discontinued operations for the fourth quarter was $20 million, slightly higher than the prior year. For the full year, interest expense increased $26 million to $87 million. Under an assumption that base rates will remain broadly stable in 2024 and not assuming any cash impacts of the vegetables or progressive produce sales, we expect full year interest expense for 2024 to be circa $85 million. Continuing with our commitment to return cash to shareholders, we are pleased to declare a dividend of $0.08 for the fourth quarter, which will be paid on April 4th to shareholders on record on March 21st.
Now I will hand you back to Rory, who will give an update on our full year outlook and closing remarks.
Rory Byrne: Thank you, Jacinta. Well, we’re very pleased with the group’s exceptional performance in 2023, delivering $385 million of adjusted EBITDA from continuing operations, and the result that we believe gives us a strong platform from which to build further momentum in the 2024 financial year. As ever, the operating environment continues to present new challenges and, indeed, new opportunities. On the macro side, we are pleased that inflation has continued to moderate across our key operating regions. We’re also pleased by the relative stability in some key foreign exchange rates, as well as some stability in energy prices, and more recently stability in interest rates. By forecasting both complex, overall we believe our business is well positioned to deliver another good result in 2024.
Given our strong 2023 over performance, our target at this early stage of the year is to enable full year adjusted EBITDA in line with 2023 on a like-for-like basis. In 2024, we’re focusing on the following key strategic priorities. Accelerating growth in our core business areas and categories, investing for growth while obviously maintaining a disciplined approach to capital, exiting the fresh vegetable business, focusing on cost control and operating efficiencies across the businesses, and advancing our sustainability goals. In conclusion, I’m very pleased with the excellent results we’ve delivered in 2023, and we expect to continue the momentum into 2024, as we also advance our strategic priorities in the year ahead. I want to finish by once again thanking all our excellent people across the group for their ongoing huge commitment and dedication to drive the Dole plc forward, as well as our suppliers and customers for their ongoing support, which provides us with great confidence as we begin the 2024 financial year.
And with that, I’ll hand it back to the operator and we can open the line for questions.
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