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Edited Transcript of FDP.N earnings conference call or presentation 29-Apr-20 2:00pm GMT

Q1 2020 Fresh Del Monte Produce Inc Earnings Call

Coral Gables Jun 16, 2020 (Thomson StreetEvents) -- Edited Transcript of Fresh Del Monte Produce Inc earnings conference call or presentation Wednesday, April 29, 2020 at 2:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Christine Cannella

Fresh Del Monte Produce Inc. - VP & IR Officer

* Eduardo Guarita Bezerra

Fresh Del Monte Produce Inc. - CFO, CAO & Senior VP

* Mohammad Abu-Ghazaleh

Fresh Del Monte Produce Inc. - Chairman & CEO

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Conference Call Participants

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* Jonathan Patrick Feeney

Consumer Edge Research, LLC - Senior Analyst of Food & HPC, Director of research and Managing Partner

* Mitchell Brad Pinheiro

Sturdivant & Co., Inc., Research Division - Research Analyst

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Presentation

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Operator [1]

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Good day, everyone, and welcome to Fresh Del Monte Produce First Quarter 2020 Conference Call. Today's call is being broadcasted live over the Internet and is also being recorded for playback purposes. (Operator Instructions)

For opening remarks and introductions, I would like to now turn today's call over to the Vice President, Investor Relations with Fresh Del Monte Produce, Christine Cannella. Please go ahead, Ms. Cannella.

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Christine Cannella, Fresh Del Monte Produce Inc. - VP & IR Officer [2]

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Thank you, Joanne. Good morning, everyone, and thank you for joining our first quarter 2020 conference call. As Joanne mentioned, I'm Christine Cannella, Vice President, Global Corporate Communications and Investor Relations with Fresh Del Monte Produce. Joining me in today's discussion are Mohammad Abu-Ghazaleh, Chairman and Chief Executive Officer; and Eduardo Bezerra, 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 freshdelmonte.com 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 and will be available for replay after this call.

Please note that our press release includes reconciliations of any non-GAAP financial measures we mention today to their corresponding GAAP measures. 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. We ask that you review the forward-looking statements information included in the press release we issued this morning and in the company's most recent filings with the SEC.

With that, I am pleased to turn today's call over to Mohammad.

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Mohammad Abu-Ghazaleh, Fresh Del Monte Produce Inc. - Chairman & CEO [3]

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Thank you, Christine. I want to take a moment to acknowledge each of you for joining Fresh Del Monte Produce First Quarter 2020 Earnings Conference Call. It has been a very difficult few months for the world. Our thoughts go out to all the heroes working to keep people safe and healthy during this unprecedented evolving global pandemic. I want to extend my best wishes to you and your families that you stay safe and healthy. I also want to extend my gratitude to our frontline team members for their commitment to providing healthy, convenient, fresh and prepared food products during this crisis.

I will go directly to what is likely top of mind for all of us: the impact of the COVID-19 pandemic and the actions we have taken to support our team members and their families, customers, suppliers and our local communities. At the outbreak of the pandemic, we immediately activated our global and regional executive crisis management teams to respond accordingly. At our production facilities, where food safety has always been top of mind, we introduced additional operating procedures and safety protocols to include social distancing, thermal screenings and increased cleaning cycles to protect our production teams. We activated our supply chain contingency plans to mitigate any disruptions in our ability to service our customers.

Most recently, we voluntarily closed a distribution and fresh-cut facility in Boston, Massachusetts, for 10 days due to team members being diagnosed with the COVID-19. We shifted inventory and production from our Boston facilities and continued to meet demand and deliver uninterrupted service to our customers in the northeastern U.S. As of today, our Boston facility is back in operation.

Other preventive actions included having as many global employees as possible working remotely. Our worldwide team members have rallied around maintaining business continuity during this critical time. And I am pleased with how quickly they adapted to the circumstances, especially our frontline teams that have kept our farms, plants and distribution centers running, allowing us to maintain our commitment to providing healthy, convenient and safe Del Monte branded products around the world. We are also collaborating in a number of ways with our local communities during this time of uncertainty, adding support wherever we can.

Regarding our business, while we saw an increase in demand in our banana business, we did experience reduced demand for fresh-cut -- for fresh and value-added products as stay-at-home orders impacted the restaurant and foodservice industry. We anticipate this trend continuing in the near future as consumer adapt to social distancing, households manage unprecedented economic hardships and unemployment rates soar. I would like to add that our Mann Packing subsidiary had shown improved results in January and February as they are recovering from their third -- the fourth quarter 2019 voluntary recall. However, the COVID-19 impact to the foodservice channel also reduced demand for meals and snacks and fresh-cut vegetables product lines. We expect the trend to continue in the second quarter of 2020 if conditions remain the same.

Over the coming 3 months, we will be moving our operations to our new Gonzales, California facility, which will allow us to streamline and improve our production capabilities, customer service and reduce costs. In addition, early in the quarter, we saw a reduction in our business in Asia as a result of supply and demand imbalances brought about by the closures and restrictions put in place in China logistics operations. This trend turned around in March as the Asia region showed signs of recovery, and we began to see demand increase, especially for bananas.

While we did experience a number of challenges in the quarter by a softer top line sales, we took several actions to fortify our business and conserve liquidity, including halting our share repurchase program, reducing our dividend by 50%, postponing noncritical capital investments through the second half of 2020 and establishing measures to reduce selling, general and administrative expenses going forward. All of these measures give me confidence that we will come out of this crisis stronger than ever.

What will the new normal be? I believe we will see behavior changes in the market. One such example is the surge in e-commerce category sales. While online grocery shopping rose at rapid pace during the pandemic, I believe consumer usage has just begun, which is why in April of 2020, we broadened our distribution channels by introducing our online store in the United Arab Emirates, with plans to roll out the concept to other countries soon.

Now I would like to turn the call to Eduardo talk about the first quarter financial results. Eduardo, please.

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Eduardo Guarita Bezerra, Fresh Del Monte Produce Inc. - CFO, CAO & Senior VP [4]

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Thank you, Mohammad, and good morning. I want to begin with a few words regarding the confidence we have in our cash and our current debt positions as we renewed our credit facility. As you are aware, we have considerable availability in our $1.1 billion credit line. Our leverage ratio for the first quarter of 2020 was below 3.2x EBITDA. In addition to availability on our credit line, the decision to halt our share repurchase program reduced the interim cash dividend and postpone noncritical capital investments will strengthen our cash flow position for the second quarter.

In terms of liquidity, we were assured from our lenders, we have no issues with drawing down if needed. We generated cash this quarter and kept our level almost flat to the end of fiscal year 2019, so this speak to the strength of our business. We continue to focus on reducing our debt while we continue to invest in critical high-margin capital projects to drive efficiency in our operations and expand our value-added business. While we see pressure on revenue and earnings in the short term, we see much opportunity for us to be ready for future growth when this crisis passes. Given all of our capabilities, as Mohammad declared, I am confident Fresh Del Monte will weather these difficult times and emerge stronger from this challenge.

With that, I will now get into the results for the first quarter of 2020. Adjusted earnings per diluted share were $0.34 compared with adjusted earnings per diluted share of $0.46 in 2019. Net sales were $1.118 billion compared with $1.154 billion in first quarter 2019, with unfavorable exchange rates negatively impacting net sales by $8 million. We estimate that the COVID-19 pandemic impacted net sales during the first quarter of 2020 by approximately $27 million.

Adjusted gross profit was $77 million compared with $95 million in 2019, adjusted operating income for the quarter was $24 million compared with $41 million in the prior year, and adjusted net income was $16 million compared with $23 million in the first quarter of 2019. In regards to the product lines for the first quarter of 2020, in our fresh and value-added business segment, net sales decreased $29 million to $661 million compared with $690 million in the prior year period, and gross profit decreased $19 million to $43 million compared with $62 million in the first quarter of 2019. The decrease in net sales was primarily the result of lower net sales of fresh-cut vegetables, pineapples and meals and snacks, partially offset by higher net sales of avocados.

As compared with our original expectations, the COVID-19 pandemic affected our net sales of fresh and value-added products by an estimated $21 million during the quarter. Also the continuing effect of November's Mann Packing voluntary product recall affected our net sales in the first quarter of 2020. In our pineapple category, net sales were $102 million compared to $111 million in the prior year period, primarily due to lower sales volume in North America, Asia and Europe as a result of lower production in our Costa Rica and Philippines operations, primarily due to unfavorable growing conditions. Also contributing to the decrease in net sales was the impact of the COVID-19 pandemic, which resulted in lower demand for pineapples across all of our regions. Partially offsetting this decrease were higher selling prices in North America and Europe and higher sales volume in the Middle East as a result of expanded sales to existing markets and additional shipments from our Kenya operation. Overall volume was 16% lower, unit pricing was 9% higher and unit cost was 6% higher than the prior year period.

In our fresh-cut fruit category, net sales were $118 million, in line with the prior year period. Net sales were impacted by lower demand in our foodservice distribution channel as a result of social distancing measures imposed by governments around the world. Overall volume and unit pricing were in line with the prior year period and unit cost was 1% higher than the first quarter of 2019.

In our fresh-cut vegetable category, net sales were $103 million compared with $119 million in the first quarter of 2019. Decrease in net sales was due to the effect of the COVID-19 pandemic, with a significant reduction of our foodservice business during the month of March, mainly in our Mann Packing subsidiary. We also faced the continuing effect of our voluntary product recall announced in November 2019. Volume was 12% lower, unit pricing was 2% lower and unit cost was 5% higher than the prior year period.

In our avocado category, net sales increased to $94 million compared with $89 million in the first quarter of 2019, primarily due to higher selling prices in North America as a result of lower industry supplies from Chile. Also contributing to the increase in net sales were higher sales volume and selling prices in Asia due to increased demand. Partially offsetting this increase were lower sales volume in North America. Volume decreased 21%, pricing was 33% higher and unit cost was 44% higher than the prior year period, impacted by start-up costs from our new processing facility in Europe and Mexico.

In our vegetables category, net sales decreased to $39 million compared with $42 million in the first quarter of 2019, primarily due to lower sales volume and selling prices as a result of Mann Packing voluntary product recall and lower sales as a result of the COVID-19 pandemic. Volume decreased 6%, unit price was in line with the prior year period and unit cost was 9% higher.

In our nontropical category, which includes our grape, berry, apple, citrus, pear, peach, plum, nectarine, cherry and kiwi product lines, net sales increased to $62 million compared with $61 million in the first quarter of 2019. Volume increased 9%, unit pricing decreased 7% and unit cost was 8% lower.

In our prepared food product line, which includes the company's prepared traditional products and meals and snacks product lines, net sales decreased primarily due to the impact of the COVID-19 pandemic, product rationalization in our Mann Packing business and the continued impact of the 2019 voluntary product recall. The decrease in net sales was partially offset by higher net sales in the company's prepared traditional product line. Gross profit was impacted by lower sales volume in our meals and snacks product line.

In our banana business segment, net sales decreased $5 million to $427 million compared with $432 million in the first quarter of 2019, primarily due to lower net sales in Asia, Europe and North America, partially offset by higher net sales in the Middle East. Asia was impacted by lower sales volume and port closures in China related to the COVID-19. Europe banana net sales decreased due to lower industry supply in the beginning of 2020 and the impact of COVID-19 selling prices in March. As compared with our original expectations, the COVID-19 pandemic affected banana net sales by an estimated $6 million during the quarter. North America was also impacted by lower supplies from our Central America production area.

Overall volume was 1% higher than last year's first quarter. Worldwide pricing decreased 2% over the prior year period. Total worldwide banana unit cost was 1% higher and gross profit decreased to $25 million compared to $35 million in the first quarter of 2019.

Now moving to selected financial data. Selling, general and administrative expenses during the quarter were $53 million compared with $54 million in the first quarter of 2019, mainly due to lower advertising and administrative expenses. We expect our recent actions to reduce selling, general and administrative expenses to have a positive impact beginning in the second quarter.

The foreign currency impact at the gross profit level for the first quarter was unfavorable by $6 million compared with an unfavorable effect of $3 million in the first quarter of previous year. In the month of March, we entered in several fuel hedges that extend through the end of 2021 to take advantage of lower fuel prices to reduce the exposure of our shipping costs in the Americas and Asia. Similar to our foreign currency hedges, we have in place to reduce our exposure in different countries that we market our products. These fuel hedges are intended to minimize our financial exposure to volatility in the market.

Interest expense net for the first quarter was $5 million compared with $7 million in the first quarter of 2019 due to lower debt levels and interest rates. Income tax expense was $300,000 during the quarter compared with the income tax expense of $9 million in the prior year. The decrease in the provision for income taxes was primarily due to lower earnings in certain taxable jurisdictions. The tax provision for the first quarter of 2020 also includes a $2 million benefit related to net operating losses carryback provision allowed through the recently enacted Coronavirus Aid Relief and Economic Security Act, the CARES Act.

For the first 3 months of 2020, our net cash provided by operating activities was $2 million compared with the net cash used in operating activities of $7 million in the same period of 2019. The increase in net cash provided by operating activities was primarily attributed to higher balances of accounts payable and accrued expenses, partially offset by lower net income.

Our total debt increased from $587 million at the end of 2019 to $599 million at the end of the first quarter of 2020. As it relates to capital spending, we invested $17 million on capital expenditures in the first quarter of 2020 compared with $34 million in the same period of 2019.

As announced this morning in our financial results press release, our Board of Directors declared an interim cash dividend of $0.05 per share payable on June 5, 2020, to shareholders of record of May 13, 2020, reducing by $0.05 our interim cash dividend from $0.10 per share.

This concludes our financial review. We can now turn the call over for Q&A.

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Questions and Answers

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Operator [1]

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Ladies and gentlemen, we apologize to all those who missed the first few minutes of this call. (Operator Instructions) Your first question comes from the line of Jonathan Feeney from Consumer Edge.

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Jonathan Patrick Feeney, Consumer Edge Research, LLC - Senior Analyst of Food & HPC, Director of research and Managing Partner [2]

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Thanks for all your efforts in this crisis. I think first question would be, the shortages -- I would -- just from the -- could you tell us what your market share in North America and Europe did to the best of your guesses in bananas? Because the drastic increases in traffic we saw -- I mean somebody seemed -- I think people were still buying bananas. It sounds like you were supply constrained. Can you give us a sense how much the market grew as far as your estimation? And that would be my first question.

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Mohammad Abu-Ghazaleh, Fresh Del Monte Produce Inc. - Chairman & CEO [3]

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Well, it's very difficult to say how much the market grew, Jonathan, in the first quarter because once we started, we just started January, and February, we started facing all these challenges in the market. And by almost end of February, there was like a rush to the retail and supermarkets, and we saw a spike in the banana sales and consumption. But that was for almost like 10 days, 2 weeks, and then all of a sudden, there was a drop in buying and in consumption. But on a normal basis, usually, our share -- market share is about 20% of the North American market. So in the bananas, we bring about 1.2 million, 1.3 million boxes a week into the North American market.

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Jonathan Patrick Feeney, Consumer Edge Research, LLC - Senior Analyst of Food & HPC, Director of research and Managing Partner [4]

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Okay. I'll follow up on that. Ordinarily, you would expect -- turning to avocados and pineapples, where you saw some pretty drastic increases in price on what seems to be some supply shortages, I'm guessing a global phenomenon, because in pineapple volumes are down significantly. Has that pricing lasted into the second quarter? And would you expect that to help offset volume declines -- continue to help to offset volume declines? Or have those production shortages eased and more, say, flat pricing is taking hold?

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Mohammad Abu-Ghazaleh, Fresh Del Monte Produce Inc. - Chairman & CEO [5]

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Yes. Well, actually, what happened with the pineapples, in particular, during the last, I would say, 6 weeks has been catastrophic because what we saw is that we were expecting to have the Easter period where pineapple sales usually climb up drastically during that period. But unfortunately, with what is going on right now in the market, supermarkets, retailers didn't want even to promote pineapples. They didn't want even to put pineapples on their shelves because they said that this is not an essential item. And what we saw is that there was an avalanche of volumes coming into the market with not much buyers. And that's the fact, and it has really impacted us during the first quarter and the first couple of weeks of this month, April.

But as we speak today, we see now that the trend is moving back to normal, I mean consumption and buying of pineapples and pricing improving. But during this, I would say, between the period to Easter and throughout the end of this month, I mean the end of March, early April, the pineapple market was in turmoil. It was not a shortage reality, there was no shortage of pineapples. There was no market for pineapples and that's unfortunate. And we noticed that mainly for pineapples, and not only in North America, but we saw the same trend in the Middle East, in Asia as well and Europe, that customers were -- like priority for them maybe was bananas and other types of certain vegetables.

And we have to consider also that with unemployment, the way it is going, be it in Europe, be it in North America, it really have impacted the consumers' purchasing power. And in my opinion, this will be a factor going forward. But I believe that we can overcome this with our vertically integrated business and the way we are managing our business, Jonathan.

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Jonathan Patrick Feeney, Consumer Edge Research, LLC - Senior Analyst of Food & HPC, Director of research and Managing Partner [6]

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Great. And last question, more of a financial one. Can you make any estimate as to -- on an adjusted basis, forgetting about the $8 million write-down of inventory, what impact in terms of gross or operating profit, the $27 million shortfall you enumerated to COVID-19 had on your company?

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Eduardo Guarita Bezerra, Fresh Del Monte Produce Inc. - CFO, CAO & Senior VP [7]

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Thank you for the question, Jonathan. It's really hard to precise. We were looking into that. So when you see the overall effect in gross profit year-over-year, as we talked about, we had an effect related to FX. That was about $6 million. And -- but the difference there, there is a portion that's really related to pricing, as we talked in explaining our results. Starting in Asia, we saw a significant drop in prices because of the port closures in China, so -- not because we have a strong presence in China, but other companies that had volumes going to China, they were diverted to Korea -- South Korea, Japan and Hong Kong, where we have the largest market share in the world. And so that really put pressure on prices there.

And then secondly, what we saw is starting in Italy and impacting the other regions as well is beginning in March, we started to see more fierce competition in both bananas as well as in volume. So I would say the majority, but it's hard to precise of that impact of the $27 million net sales, translated to the gross profit line.

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Operator [8]

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Your next question comes from the line of Mitch Pinheiro from Sturdivant.

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Mitchell Brad Pinheiro, Sturdivant & Co., Inc., Research Division - Research Analyst [9]

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Hope everybody's well. I missed the beginning of the call. I was just curious, Mohammad, whether you spoke about, to the extent you can, sort of the outlook for the second quarter as it relates to all the disruption. I mean are you back on track to any extent? Is there anything -- I mean how should we approach putting our estimates together for the second quarter?

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Mohammad Abu-Ghazaleh, Fresh Del Monte Produce Inc. - Chairman & CEO [10]

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I'm always honest and I'm very honest in saying that the first -- April was challenging. As we go now, and in April, first part of April was challenging regarding pineapple and the fresh vegetables as well because of the foodservice. Foodservice is a major, major consumer or major buyer of vegetables at fresh-cut vegetables. With the foodservice out of the picture, mostly, and that has impacted our fresh vegetables in Salinas and Mann Packing as well as in a slight way, the fresh-cut fruit as well.

But as we speak today, I see a much better market going forward. We see a lot of more normalcy in the market. We see the pineapple coming back to normal behavior. And we see very promising signs even from the foodservice, that the volumes and the demand is picking up. We can see this even during this week that things are changing. And I believe that we are in a very strong position, Mitch, and let me be very clear on that. As far as we, Fresh Del Monte, we believe that we will come out of this crisis stronger than before because for us, during this crisis, we have seen all the weak spots and all the, like you say, the holes that we -- that clearly identify.

And what we are doing right now in Salinas, in particular, the consolidation of our operations, that will bring us, hopefully by end of June, that will be totally done, but that will bring us about more or less $30 million in savings just by doing that in our operation in Salinas. And there is more to do that. We are moving -- consolidating our operations in Arizona, for instance. We are leaving 1 plant, which is being leased to go to our own plant in -- outside Phoenix where we are going as well to make substantial savings there and better operations.

We have so many things going on in the next few months that will substantially strengthen our business. We -- I don't want to mention everything on a conference call, but maybe through -- Christine can give you more information later on and Eduardo. But we have so many very positive things going on for the second half of the year. And I believe that there will be a lot of, hopefully, very nice surprises.

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Eduardo Guarita Bezerra, Fresh Del Monte Produce Inc. - CFO, CAO & Senior VP [11]

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And Mr. Abu-Ghazaleh, if I may add, Mitch, a couple of additional comments. So we started in the month of -- sorry, April because Asia was the first market that was faced the impact of the coronavirus and was the first to come out. We're seeing, in the month of April, much stronger gross profit margins than what we saw a year ago. So either on bananas or some of our other products that we see, we're getting higher margins than what we saw last year. And another thing that is important, because at this time, consumers also looked into stocking traditional prepared business, we saw a significant increase in our -- in demand for our prepared traditional business that last year had a very minimum contribution to our bottom line and it was almost breakeven.

While this year, we expect a very strong contribution between our branded, our private label business and our concentrates because all of those saw a significant increase in prices since the end of last year. And as we're expecting inventories to be deployed, with the new production coming in from Kenya at much more favorable yields as compared to last year, that will drive reduced costs that we're going to see between Q2 and throughout the end of the year.

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Mitchell Brad Pinheiro, Sturdivant & Co., Inc., Research Division - Research Analyst [12]

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When -- what does -- at this juncture, what does the banana market look like for you globally in terms of the supply and demand picture?

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Mohammad Abu-Ghazaleh, Fresh Del Monte Produce Inc. - Chairman & CEO [13]

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Today, as we speak, I think supply and demand are more or less in line, Mitch. I don't see a shortage of bananas and I see the consumption and the demand are very much in line. Really, we don't see big disruptions like we saw in pineapples or in vegetables or in the value-added products. But banana has been steady and consistent.

What I would like to comment as well, which I mentioned in my -- is that we just started actually e-commerce platform. And I would encourage you to go and look at it. It's www.myfreshdelmonte.com, and I want you to see our new site. And it's -- we have just started about 2 weeks ago or less. And it's been a fantastic start and the reception and the feedback has been extremely positive. And we see repeat orders, and we see repeat -- the customers are extremely, highly positive because of the -- also the quality and the brand itself has been extremely favorable to this. And hopefully, this will also be rolled out in the next few months in North America as well.

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Mitchell Brad Pinheiro, Sturdivant & Co., Inc., Research Division - Research Analyst [14]

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Okay. A couple of other questions. By the way, just going back, 1 question regarding like the fresh veggie business, fresh fruit, where you talked about challenging obviously, the challenging environment for foodservice. What percentage, how big is foodservice either within all of Fresh Del Monte or just in the veggie, the fresh-cut veggie area, fresh-cut fruit? Can you give us some sort of hypothesis?

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Mohammad Abu-Ghazaleh, Fresh Del Monte Produce Inc. - Chairman & CEO [15]

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Yes, I would tell you, as far as our business with this fresh-cut fruits and related other items that we produce ourselves, it's about 30% foodservice, about 70% other items. It's the reverse with the Mann vegetable business. It's usually about 70% foodservice and 30% retail. So the foodservice was mostly hit in the Mann vegetable business rather than in our own category, which is the fruits. But still, all in all, fruits and vegetables were impacted negatively during this last 6, 7 weeks since the foodservice almost came to a standstill. And I mean considering ourselves compared to the foodservice, I think we are very lucky. We should be -- I mean our business definitely had been impacted but compared to people in the foodservice, I feel very sad and very sorry for them the way it's going.

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Mitchell Brad Pinheiro, Sturdivant & Co., Inc., Research Division - Research Analyst [16]

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All right. Just 2 more questions, quick questions, one...

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Eduardo Guarita Bezerra, Fresh Del Monte Produce Inc. - CFO, CAO & Senior VP [17]

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Just 1 correction, Mr. Abu-Ghazaleh because I think in your numbers, you included some other channels. Specifically on what we call foodservice, that represents about between 15% and 20% of our overall sales used 2019 as the basis. While for Mann Packing specifically, that's about 45% to 50%, so a little bit less of that. So that's why January and February, we saw a recovery from the previous recall, but then March is when we saw a huge impact because the foodservice suddenly shut down, and so almost half of our demand went away from one day to the other. And so that caused a significant portion of the other charges that we mentioned, Mitch, on the -- on our adjustments regarding inventory, was all by acres, so acres that we decided not to harvest and that represented almost half of the $8 million impact that we saw in Q1.

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Mitchell Brad Pinheiro, Sturdivant & Co., Inc., Research Division - Research Analyst [18]

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Okay. I -- just 2 more quick questions. One, on the fresh-cut veggie business and the recall. Is there any way to like -- if you -- how much of the recall sort of was in the decline there? Is there any way to kind of gauge what business you didn't recover?

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Eduardo Guarita Bezerra, Fresh Del Monte Produce Inc. - CFO, CAO & Senior VP [19]

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So I would say, Mitch, a couple of things. So there are a couple of customers that they were concerned about the issues that we faced. But we were -- we assure them that with the new Gonzales plant up and running by the month of July, they are very confident to come back to have business with us. But also we do believe that a lot of the cost and inefficiency that resides on Mann Packing is going to go away because we are combining, just for you to have an idea, almost 4 different plants in 1 single facility. So it's going to drive, as the Chairman mentioned, about $30 million in savings annually. And we expect as we reach peak capacity there, that could be even higher than that because we're going to reduce logistic costs, rental costs that we had there as well as we're going to be able to -- because of automation, that's going to run much faster our operation there and be able to supply with a best customer service versus what we saw before.

So all those things, I would say, will be in place starting in July. And I can tell the only struggle why we haven't been able to ramp up this faster is because of limitations on water usage imposed by the city of Gonzales that originally, we had a commitment on their side for a certain volume. But that changed a little bit and finally, we signed the documents in the recent weeks. And with that, we're 100% secure to get into the operations there.

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Mitchell Brad Pinheiro, Sturdivant & Co., Inc., Research Division - Research Analyst [20]

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And then last -- just last thing on the avocado market. I was surprised -- I mean looking at the volumes in the United States, I didn't see volumes decline 21%. So your volume decline seemed a little larger. And also your pricing up 33% in the quarter was a little bit stronger than I would have anticipated. I kind of saw near double digit. Can you talk about your avocado business a little bit?

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Mohammad Abu-Ghazaleh, Fresh Del Monte Produce Inc. - Chairman & CEO [21]

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The avocado business, Mitch, has been with us for so many years now, and we have been, all the time, buying through third parties. I mean we never had a plant there. And everything that we used to buy, we used to buy from the market from packers there that used to pack for us or even in the open market sometimes when we are short. However, since about 2, 3 months back, we started our state-of-the-art -- one of the -- it is literally the best plant in Mexico for avocado packing. There is nothing compared to it. And I can tell you, it's one of our best plants in the world, really. When I saw it, I couldn't believe it.

Anyway, now we are packing almost everything in our plant. So I think this will reflect also on our cost, our quality and our service to our customers. So we are very confident, Mitch, going forward, I think that our market share and our presence in the market will be very significant through the new kind of streamlining our business, avocado business in North America, Europe and Asia. And it's not only this plant that we build there, it's not only for North America but it serves Europe, it serves Asia, MENA and North America, of course, the biggest market. But I am -- we are very confident and very enthusiastic about the future for the avocados going forward really.

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Mitchell Brad Pinheiro, Sturdivant & Co., Inc., Research Division - Research Analyst [22]

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But what happened in the quarter, though? I mean I just -- I mean volume was down 21%. Was that -- was any -- I didn't see that in terms of like supply changes into the U.S. market. I just thought we would see flattish China volume. And then with your plant, unit costs were 44% higher. I guess we'd see that come down with your packing plant efficiencies. But it just seemed like the quarter was sort of opposite of what I was looking for in the avocado line.

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Mohammad Abu-Ghazaleh, Fresh Del Monte Produce Inc. - Chairman & CEO [23]

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Yes, but don't forget that we have been -- with the pandemic that we are going through, we saw the first week, 10 days, once the government said that there will be a closure and lockdown on people, and we saw this huge rush to the retailers, to the clubs and people in lines. And we saw a very big spike into avocados in the first, like, 10 days. And then all of a sudden, because of that, there was a lot of supplies coming into the market. The pipeline was full. The cold storage was full anticipating this will continue to go on. Unfortunately, like 10 days later, 2 weeks later, all of a sudden, consumption and buying, just like in pineapple, it's not as bad as pineapples, but with avocados, we saw a very drastic drop into sales. And the stocks that were in the pipeline or in the cold storage were -- really were impacted and suffered. We cannot put so much volume for so long in storage.

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Eduardo Guarita Bezerra, Fresh Del Monte Produce Inc. - CFO, CAO & Senior VP [24]

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And just to complement there, Mitch, as well, so we had a ramp-up plan of our plant during this year. And so -- and of course, in the beginning, we had higher costs because of the start-up of the plant that we are seeing right now. But a good example is in the month of April in the last couple of weeks, we are working the plant at a very high utilization capacity, preparing for the Cinco de Mayo. So it's interesting that while we're talking about pineapples that we saw demand during the month of March and suddenly went down because I think there was the frustration on expectations of Easter, we're seeing now the opposite. So we're seeing an uptake on the avocado volume preparing for Cinco de Mayo. And so we are running our plant 24/7 very -- with very strong efficiencies there. And we believe that some of the challenges we faced in Q1 in terms of the sourcing and achieving our regional volumes, I think they were adjusted and corrected for the second quarter.

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Mitchell Brad Pinheiro, Sturdivant & Co., Inc., Research Division - Research Analyst [25]

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It seems we're out of time.

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Mohammad Abu-Ghazaleh, Fresh Del Monte Produce Inc. - Chairman & CEO [26]

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I'd like to add to this, Mitch, that we are not only packing in Mexico, but we do have our packing plant as well in Los Angeles. I mean we are packing as well the Californian avocados. So we have 2 sources right now, it's California avocados as well as Mexico and that's for our markets.

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Operator [27]

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There are no further questions at this time. I will turn the call back over to Mr. Abu-Ghazaleh.

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Mohammad Abu-Ghazaleh, Fresh Del Monte Produce Inc. - Chairman & CEO [28]

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Thank you. Thank you very much, and I appreciate having you joining this virtual call, which is the first time that I have done that, but it went very nicely. And I can assure you that we are very confident about our immediate future as well as the long-term future. And I hope to talk to you in person from our offices on our next conference call. Best of luck and stay safe. Thank you. Good day. Bye.

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Operator [29]

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Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.