Canned packaging extends the effective life of fruits and vegetables and provides a convenient way to promote intake of key nutrients. A great player in this industry is Fresh Del Monte Produce Inc. (FDP, Financial). The company has posted excellent fourth-quarter and full-year 2016 results, including a 26.68% increase in gross profit. For fiscal 2016, net income increased 239.76%.
Fresh Del Monte Produce through its subsidiaries produces, distributes and markets fresh and fresh-cut fruits and vegetables in Europe, the Middle East and Africa. The company deals with bananas, pineapples, melons, tomatoes, grapes, apples, pears, peaches, plums, nectarines, cherries, citrus, avocados, blueberries and kiwi. The true multinational fruit company markets its products worldwide under the Del Monte brand and has 12 owned /six chartered vessels and 40 worldwide distribution centers /18 fresh-cut operations.
Fourth-quarter performance
On Feb. 21, the Coral Gables, Florida-based company reported financial results for its fourth quarter and full fiscal year ended Dec. 30. The company’s net sales decreased 2.38% to $954.6 million compared to $977.9 million for the comparable prior-year period. Sales for banana and the prepared foods segment decreased 9.11% to $431.1 million and 4.31% to $82.2 million compared to $474.3 million and $85.9 million. On the other hand, sales for the other fresh produce segment increased 5.65% to $441.3 million compared to $417.7 million for the same period last year.
Gross profit for the reported quarter increased 26.68% to $56.5 million compared to $44.6 million in the prior-year period. The gross profit margin increased 5.92% from 4.56% in the same period last year. Gross profit for the banana segment increased to $4.6 million, compared to a gross loss of $24.8 million for the same period last year. Gross profit of the other fresh produce and prepared foods segment decreased to $37.7 million and $14.2 million, compared to $54.3 million and $15.1 million.
Del Monte’s operating income increased to $2.9 million compared to an operating loss of $73.3 million in the year-ago quarter. Operating income as a percentage of net sales was 0.30%. Net income increased to $10.5 million, or 23 cents per diluted share compared to a net loss of $73.6 million for the comparable prior year period. Net income as a percentage of net sales was 1.1%. The company’s EBITDA increased $25.4 million compared to $(69.6) million in the comparable prior-year period.
Del Monte’s cost of sales decreased 3.77% to $898.1 million compared to $933.3 million. Cost of sales as a percentage of net sales decreased to 94.08% compared to 95.48% in the prior-year period. Selling, general and administrative expenses decreased 7.14% to $46.8 million compared to $50.4 million in the same period last year. Net interest expense for the reported quarter increased 44.44% to $1.3 million compared to $900,000.
Del Monte ended the quarter with net inventories of $493.2 million, an increase of 2.34%, compared to $481.9 million in the year-ago quarter. Cash and cash equivalents and long-term debt for the reported quarter decreased 19.28% to $20.1 million and 8.31% to $231.7 million, compared to $24.9 million and $252.7 million for the comparable prior-year period.
Attributes of the quarter
Net sales decreased primarily due to lower net sales in the company's banana and prepared food business segments which was moderately counterbalanced by higher net sales in the other fresh produce business segment. Gross profit improved mainly due to lower ocean freight and fruit costs along with higher selling prices in the other fresh produce and banana business segments. Operating income showed positive results mainly due to higher gross profit in the banana business segment.
Fiscal 2016 results overview
The following chart shows financial results for fiscal 2016.
| Metrics | Fiscal 2016 | Fiscal 2015 | % change |
| Net sales | $4.01 billion | $4.06 billion | (1.23)% |
| Banana segment sales | $1.81 billion | $1.87 billion | (3.21)% |
| Other fresh produce segment sales | $1.85 billion | $1.83 billion | 1.09% |
| Prepared foods segment sales | $347.4 million | $362.6 million | (4.19)% |
| Gross profit | $461.4 million | $342.3 million | 34.79% |
| Operating income | $244.2 million | $91 million | 168.35% |
| Net income | $225.6 million | $66.4 million | 239.76% |
| EBITDA | $240.8 million | $83.8 million | 187.35% |
| Adjusted EBITDA | $340 million | --- | --- |
| Cost of sales | $3.55 billion | $3.71 billion | (4.31)% |
| Selling, general and administrative expenses | $187.4 million | $183.9 million | 1.9% |
| Net interest expense | $3.4 million | $3.7 million | (8.11)% |
| Net cash flow from operating activities | $323.3 million | $231.1 million | 39.9% |
Growth and strategies
By 2050, the demand for food will rise by 70% and therefore, Del Monte is expanding its global footprint in North America, South America, Asia, Colombia, Ecuador, Central America and Brazil. To meet the demand, Del Monte is leveraging its existing infrastructure, growing its existing product lines, entering new distribution channels and adding new product lines to its portfolio. Further, to increase volume and reduce costs, the company is maximizing revenues from its existing infrastructure.
On a concluding note
Overall, Del Monte is a rock-solid company with a strong balance sheet, remarkable white space opportunities, a proven business model and an experienced management team. Del Monte is one of the most widely recognized food brands worldwide with over 90% awareness.
From 2011 to 2016, the company's adjusted EPS, adjusted EBITDA and operating cash flow grew at a compounded annual growth rate of 17.3%, 9.99% and 8.59%. Between 2010 and 2016, Del Monte has spent $623 million under a stock repurchase program. It is headed toward a bright future and is set to deliver greater shareholder returns.
Disclosure: I do not hold any position in the company.
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