Search the web
Welcome, Guest
[Sign Out, My Account]
EDGAR_Online

Quotes & Info
Enter Symbol(s):
e.g. YHOO, ^DJI
Symbol Lookup | Financial Search
FDP > SEC Filings for FDP > Form 10-K on 19-Feb-2013All Recent SEC Filings

Show all filings for FRESH DEL MONTE PRODUCE INC | Request a Trial to NEW EDGAR Online Pro

Form 10-K for FRESH DEL MONTE PRODUCE INC


19-Feb-2013

Annual Report


Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations

Overview

We are one of the world's leading vertically integrated producers, marketers and distributors of high-quality fresh and fresh-cut fruit and vegetables, as well as a leading producer and marketer of prepared fruit and vegetables, juices, beverages and snacks in Europe, Africa and the Middle East. We market our products worldwide under the DEL MONTE® brand, a symbol of product innovation, quality, freshness and reliability since 1892. Our global sourcing and logistics system allows us to provide regular delivery of consistently high-quality produce and value-added services to our customers. Our major producing operations are located in North, Central and South America, Asia and Africa. Production operations are aggregated on the basis of our products: bananas, other fresh produce and prepared foods. Other fresh produce includes pineapples, melons, tomatoes, non-tropical fruit (including grapes, apples, pears, peaches, plums, nectarines, avocados, citrus and kiwis), fresh-cut produce and other fruit and vegetables and a plastic product and box manufacturing business and third-party ocean freight services. Prepared foods include prepared fruit and vegetables, juices, beverages, snacks, poultry and meat products.

Strategy

Our strategy is a combination of maximizing revenues from our existing infrastructure, entering new markets and strict cost control initiatives. We plan to continue to capitalize on the growing global demand for fresh produce and expand our reach into existing and new markets. We expect sales growth of fresh produce in key markets by increasing sales volume and per unit sales prices as permitted by market conditions. Our strategy includes increasing volumes from existing production and distribution facilities in order to improve operating efficiencies and reduce per unit costs. We plan additional investments in production facilities to expand our product offering in established markets and continue with our recent expansion in growth markets, such as the Middle East, Africa and countries formerly part of the Soviet Union. We also plan additional investments in our North America distribution and fresh-cut fruit facilities to support our planned growth in this market.

Net Sales

Our net sales are affected by numerous factors, including mainly the balance between the supply of and demand for our produce and competition from other fresh produce companies. Our net sales are also dependent on our ability to supply a consistent volume and quality of fresh produce to the markets we serve. For example, seasonal variations in demand for bananas as a result of increased supply and competition from other fruit are reflected in the seasonal fluctuations in banana prices, with the first six months of each year generally exhibiting stronger demand and higher prices, except in those years where an excess supply exists. In 2012, our overall banana sales volume decreased by 7% while our average per unit sales prices decreased by 1%. Our net sales of other fresh produce were negatively impacted by lower sales volumes of tomatoes, melons, pineapples and non-tropical fruit. In the processed foods business, we generally realize the largest portion of our net sales and gross profit in the third and fourth quarters of the year. During 2012, our prepared food net sales decreased principally as a result of lower sales of canned pineapples due to lower yields and lower selling prices for industrial products which resulted from higher industry supplies.

Since our financial reporting currency is the U.S. dollar, our net sales are significantly affected by fluctuations in the value of the currency in which we conduct our sales versus the dollar, with a weak dollar versus such currencies resulting in increased net sales in dollar terms. Including the effect of our foreign currency hedges, net sales for 2012 were negatively impacted by $30.5 million, as compared to 2011, principally as a result of a weaker Japanese yen, euro and Korean won versus the U.S. dollar.

During 2012, our net sales were negatively affected by lower sales volumes of bananas, tomatoes, pineapples and melons, principally due to our business rationalization based on our decision to not enter into unprofitable contracts with certain large retailers. Our net sales were positively affected by higher sales volume of fresh-cut products in North America and the Middle East that resulted from an expanded customer base and improved demand for our products. Also positively affecting our net sales were our expansion into new markets in the Middle East. Our net sales growth in recent years has been achieved primarily through increased sales volume in existing markets of other fresh produce, primarily pineapples, fresh-cut products and non-tropical fruit, and favorable pricing on our Del Monte Gold® Extra Sweet pineapple combined with increased sales volume and per unit sales prices of bananas in existing and new markets. Our net sales growth in recent years has also been attributable to a broadening of our product line with the expansion of our fresh-cut produce business, specifically increased sales to the foodservice sector, combined with our expansion into new markets. We expect our net sales growth to continue to be driven by increased sales volumes across all of our segments. In the Middle East, we expect to continue to increase our net sales of our fresh produce and prepared food product offerings as a result of our expansion in the Saudi Arabian and other regional markets. We also expect to increase


Table of Contents

our sales by developing new products in the prepared food segment, targeting the convenience store and foodservice trade in selected European and Middle East markets and to continue to expand our sales of beverage products in the European and Sub-Sahara African markets.

Cost of Products Sold

Cost of products sold is principally composed of two elements, product and logistics costs. Product cost for our produce is primarily composed of cultivation (the cost of growing crops), harvesting, packaging, labor, depreciation and farm administration. Product cost for produce obtained from independent growers is composed of produce and packaging costs. Logistics costs include land and sea transportation and expenses related to port facilities and distribution centers. Sea transportation cost is the most significant component of logistics costs and is comprised of the cost of vessel operating expenses and chartering refrigerated vessels. Vessel operating expenses for our owned vessels include operations, maintenance, depreciation, insurance, fuel (the cost of which is subject to commodity price fluctuations), and port charges. For chartered vessels, operating expenses include the cost of chartering the vessels, fuel and port charges. Variations in containerboard prices, which affect the cost of boxes and other packaging materials, and fuel prices can have a significant impact on our product cost and our profit margins. Also, variations in the production yields, fertilizers and other input costs and the cost to procure products from independent growers can have a significant impact on our costs. Containerboard, plastic, resin and fuel prices have historically been volatile. During 2011, cost of fuel increased by 37% and containerboard increased by 8%, increasing our cost of product sold by $49.7 million. Also included was a credit of $(3.3) million in 2011 related to insurance claims proceeds as a result of damages that occurred in 2010 from flooding in Guatemala and an earthquake in Chile and $1.9 million in inventory write-downs in Central America as a result of our melon program rationalization and write-down of packaging material and other inventory in one of our United Kingdom fresh-cut operations. During 2012, cost of fuel increased by 8% and containerboard decreased 8%, with negligible effect on our cost of products sold. Also included were $0.7 million in 2012 in inventory write-offs related to our previously discontinued pineapple and melon operations in Brazil and $0.4 million in inventory write-offs and clean-up costs and a credit of $(0.2) million for insurance reimbursements related to floods in Costa Rica.

In general, changes in our volume of products sold can have a disproportionate effect on our gross profit. Within any particular year, a significant portion of our cost of products sold is fixed, both with respect to our operations and with respect to the cost of produce purchased from independent growers from whom we have agreed to purchase all the products they produce. Accordingly, higher volumes produced on company-owned farms directly reduce the average per-box cost, while lower volumes directly increase the average per-box cost. In addition, because the volume that will actually be produced on our farms and by independent growers in any given year depends on a variety of factors, including weather, that are beyond our control or the control of our independent growers, it is difficult to predict volumes and per-box costs.

Since our financial reporting currency is the U.S. dollar, our costs are affected by fluctuations in the value of the currency in which we have significant operations versus the dollar, with lower costs resulting from a strong U.S. dollar. During 2012, cost of products sold was positively impacted by approximately $19.4 million as compared with 2011 due to a stronger U.S. dollar versus the various currencies in which we have significant operations.

Selling, General and Administrative Expenses

Selling, general and administrative expenses primarily include the costs associated with selling in countries where we have our own sales force, advertising and promotional expenses, professional fees, general corporate overhead and other related administrative functions.

Gain on Disposal of Property, Plant and Equipment

Gain on disposal of property, plant and equipment was $0.2 million in 2012 principally as a result of the sale of shipping-related equipment and other surplus equipment, partially offset by the disposal of low-yield banana plants in Costa Rica. In 2011, the gain on disposal of property, plant and equipment of $3.1 million resulted primarily from the sale of shipping-related equipment. Asset Impairment and Other Charges, Net

Asset impairment and other charges, net were $3.3 million in 2012 as compared with $16.3 million in 2011, a decrease of $13.0 million. In 2012, we recorded asset impairment and other charges totaling $3.3 million principally related to an underutilized fresh-cut facility and distribution centers in the United Kingdom, flood damages in our Costa Rica banana operations net of insurance proceeds, credits from insurance proceeds related to prior years flood in our Guatemala banana operations and other costs in Hawaii.


Table of Contents

In 2011, we recorded asset impairment and other charges totaling $16.3 million primarily related to asset impairments and other charges as a result of our Central American melon rationalization program, an under-utilized fresh-cut facility and distribution center in the United Kingdom, our decision to abandon an isolated area in our banana operations in the Philippines and a low-productivity area in Costa Rica and legal costs in Hawaii related to the Kunia well site, partially offset by insurance claims proceeds related to damages that occurred in 2010 from flooding in Guatemala and an earthquake in Chile.

In 2010, we recorded asset impairment and other charges totaling $37.3 million related to plant disease affecting an isolated growing area in our banana operations in the Philippines that was abandoned during the first quarter of 2011, exit activities in South Africa and Brazil, damage caused by floods in our Guatemala banana farms and an earthquake in Chile, combined with an impairment charge of the DEL MONTE® perpetual, royalty-free brand name license for beverage products in the United Kingdom due to lower than expected sales volume and pricing and the relocation of a port facility in North America.

Interest Expense

Interest expense consists primarily of interest on borrowings under working capital facilities that we maintain and interest on other long-term debt primarily for capital lease obligations. In 2012, our interest expense declined, reflecting primarily a decrease in our average outstanding debt.

Other (Expense) Income, Net

Other (expense) income, net, primarily consists of currency exchange gains or losses, equity gains and losses in unconsolidated companies and other miscellaneous income and expense items. During 2012, we recorded lower foreign exchange losses as compared with 2011 combined with a gain on the sale of equity securities and equity income from unconsolidated companies.

Provision for Income Taxes

The provision for income taxes in 2012 was $12.2 million and includes $9.7 million of credits due primarily to reversals of uncertain tax positions due to a lapse in the statue of limitations and settlements of tax audits and litigation and changes in tax rates in certain jurisdictions. Income taxes consist of the consolidation of the tax provisions, computed on a separate entity basis, in each country in which we have operations. Since we are a non-U.S. company with substantial operations outside the United States, a substantial portion of our results of operations is not subject to U.S. taxation. Several of the countries in which we operate have favorable tax rates. We are subject to U.S. taxation on our operations in the United States. From time to time, tax authorities in various jurisdictions in which we operate audit our tax returns and review our tax positions. There are audits presently pending in various countries. There can be no assurance that any tax audits, or changes in existing tax laws or interpretations in countries in which we operate, will not result in an increased effective tax rate for us.


Table of Contents

Results of Operations

The following table presents, for each of the periods indicated, certain income statement data expressed as a percentage of net sales:

                                                           Year ended
                                  December 28, 2012     December 30, 2011     December 31, 2010
Statement of Income Data:
Net sales                                  100.0 %               100.0 %               100.0 %
Gross profit                                10.0                   8.9                   7.7
Selling, general and
administrative expenses                      5.2                   5.3                   4.7
Operating income                             4.7                   3.2                   2.2
Interest expense                             0.1                   0.2                   0.3
Net income attributable to
Fresh Del Monte Produce Inc.                 4.2                   2.6                   1.8

The following tables present for each of the periods indicated (i) net sales by geographic region, (ii) net sales by product category and (iii) gross profit by product category and, in each case, the percentage of the total represented thereby:

                                                                Year ended
                               December 28, 2012             December 30, 2011             December 31, 2010
                                                        (U.S. dollars in millions)
Net sales by geographic
region:
North America             $     1,821.1          53 %   $     1,806.8          50 %   $     1,741.3          49 %
Europe                            704.3          21 %           854.8          24 %           913.8          26 %
Asia                              422.2          12 %           431.5          12 %           411.1          11 %
Middle East                       387.4          11 %           429.2          12 %           421.1          12 %
Other                              86.2           3 %            67.4           2 %            65.6           2 %
Total                     $     3,421.2         100 %   $     3,589.7         100 %   $     3,552.9         100 %



                                                                     Year ended
                                    December 28, 2012             December 30, 2011             December 31, 2010
                                                             (U.S. dollars in millions)
Net sales by product category:
Banana                         $     1,544.6          45 %   $     1,653.1          46 %   $     1,620.3          46 %
Other fresh produce                  1,544.8          45 %         1,581.6          44 %         1,572.8          44 %
Prepared food                          331.8          10 %           355.0          10 %           359.8          10 %
Total                          $     3,421.2         100 %   $     3,589.7         100 %   $     3,552.9         100 %

Gross profit by product category:
Banana                         $        89.7          26 %   $        88.3          28 %   $        31.4          11 %
Other fresh produce                    205.8          60 %           177.9          55 %           195.4          72 %
Prepared food                           46.2          14 %            53.3          17 %            45.6          17 %
Total                          $       341.7         100 %   $       319.5         100 %   $       272.4         100 %


Table of Contents

2012 Compared with 2011

Net Sales

Net sales in 2012 were $3,421.2 million compared with $3,589.7 million in 2011. The decrease in net sales of $168.5 million was primarily attributable to lower net sales of bananas, other fresh produce and prepared food.

•         Net sales in the banana segment decreased by $108.5 million principally
          due to lower sales in Europe, the Middle East and Asia, partially
          offset by higher sales in North America.



?            Europe banana net sales decreased primarily due to lower sales
             volumes in Germany and the United Kingdom as a result of our
             decision not to enter into unprofitable banana sales contracts with
             certain large retailers, partially offset by net sales increases in
             Southern Europe and higher per unit sales prices.



?            Middle East banana net sales decreased principally due to lower
             sales volumes, a result of reduced shipments from Central America
             into secondary Middle East markets combined with lower purchases
             from independent growers in the Philippines, partially offset by
             higher per unit sales prices.



?            Asia banana net sales decreased principally due to lower sales
             volumes as a result of reduced purchases from independent growers
             combined with lower per unit sales prices due to higher industry
             volumes in the Japan and Korea markets principally as a result of
             restricted shipments to China.



?            North America banana net sales increased primarily due to a 5%
             increase in sales volumes that resulted from increased shipments
             from Costa Rica, partially offset by lower per unit sales prices.
             The lower per unit sales prices in North America were primarily due
             to the absence of a per box surcharge that was implemented in the
             latter part of the first quarter of 2011 through the second quarter
             of 2011 as a result of industry shortages.



•         Net sales in the other fresh produce segment decreased by $36.8 million
          principally as a result of lower sales of tomatoes, pineapples and
          melons partially offset by higher net sales of fresh-cut products.



?            Net sales of tomatoes decreased primarily due to lower per unit
             sales prices that resulted from higher industry volumes combined
             with our rationalization program which reduced our sales volumes.



?            Net sales of pineapples decreased principally as a result of lower
             sales volumes in Europe, the Middle East and Asia as a result of
             reduced production from our Costa Rica and Philippines operations.
             Sales volumes decreased 7% in 2012 as a result of planned volume
             reductions consistent with demand and growing delays. Per unit sales
             prices were higher in Europe, the Middle East and Asia due to
             improved market conditions. In North America, pineapple net sales
             increased due to increased shipments from Costa Rica which resulted
             in a slight reduction in per unit sales prices.



?            Net sales of melons decreased principally as a result of a 23%
             reduction in sales volumes due to planned rationalization of melon
             operations in Central America, partially offset by a 20% increase in
             per unit sales prices that resulted from improved market conditions
             in North America combined with low domestic industry volumes.



?            Net sales of fresh-cut products increased primarily due to higher
             per unit sales prices and sales volumes in North America and the
             Middle East that resulted from an expanded customer base and
             improved demand for our products in North America combined with
             expansion into new markets and introduction of new products in the
             Middle East. In Asia, net sales of fresh-cut products increased due
             to improved demand. Partially offsetting these increases in net
             sales of fresh-cut products were lower sales volumes in Europe that
             resulted from our closure of a fresh-cut prepared salad facility in
             the United Kingdom earlier in the year.



•         Net sales in the prepared food segment decreased by $23.2 million
          principally as a result of lower sales volume of canned pineapples due
          to lower yields in our Kenya operation combined with worldwide lower
          selling prices for industrial products which resulted from higher
          industry supplies. Partially offsetting these decreases in net sales in
          the prepared food segment were higher net sales in our Jordanian
          poultry business due to increased production volumes which resulted
          from improved yields.


Table of Contents

Cost of Products Sold

Cost of products sold was $3,079.5 million in 2012 compared with $3,270.2 million in 2011, a decrease of $190.7 million. This decrease in cost of products sold was primarily attributable to an overall 5% reduction in sales volumes combined with lower ocean freight costs as a result of improved vessel utilization. In 2012, we recorded $0.7 million in inventory write-offs related to our previously discontinued pineapple and melon operations in Brazil and $0.4 million in inventory write-offs and clean-up costs and a credit of $(0.2) million for insurance reimbursements related to floods in Costa Rica. In 2011, we recorded a credit of $(3.3) million related to insurance claims proceeds as a result of damages that occurred in 2010 from flooding in Guatemala and an earthquake in Chile and $1.9 million in inventory write-downs in Central America as a result of our melon program rationalization and write-down of packaging material and other inventory in one of our United Kingdom fresh-cut operations.

Gross Profit

Gross profit was $341.7 million in 2012 compared with $319.5 million in 2011, an
increase of $22.2 million. The increase in gross profit was attributable to
higher gross profit on other fresh produce and bananas, partially offset by
lower gross profit in prepared food.

•         Gross profit in the other fresh produce segment increased by $28.0
          million due to higher gross profit on melons, fresh-cut products and
          pineapples, partially offset by lower gross profit on tomatoes.



?            Gross profit on melons increased principally due to higher per unit
             selling prices in North America as a result of improved market
             conditions, partially offset by higher per unit distribution and
             transportation costs.


?            Gross profit on fresh-cut products increased principally due to
             higher per unit selling prices in North America as a result of
             improved market conditions. Also contributing to the increase in
             gross profit on fresh-cut products were higher per unit selling
             prices and lower per unit costs in the Middle East due to improved
             market conditions and operational improvements combined with higher
             selling prices in Europe and Asia as a result higher customer
             demand.


?            Gross profit on pineapples increased principally due to higher per
             unit selling prices in Europe, the Middle East and Asia as a result
             of improved market conditions combined with lower ocean freight
             costs, partially offset by higher per unit fruit cost due to lower
             yields. Worldwide per unit sales prices increased 4% and per unit
             cost increased 2%.


?            Gross profit on tomatoes decreased due to lower sales volumes and
             per unit selling prices that resulted principally from high industry
             supplies in North America.



•         Gross profit on the banana segment increased by $1.4 million
          principally due to higher per unit selling prices in Europe combined
          with lower per unit cost as a result of improved vessel utilization.
          Partially offsetting these increases in gross profit on bananas were
          lower per unit selling prices in North America and Asia and lower sales
          volumes in the Middle East.



•         Gross profit on the prepared food segment decreased by $7.1 million
          principally as a result of reduced sales volumes and per unit selling
          prices of canned pineapples combined with increased per unit cost which
          resulted from lower yields. Also contributing to the lower gross profit
          in the prepared food segment were lower selling prices for industrial
          products as a result of higher industry supplies. Partially offsetting
          these decreases were higher gross profit on deciduous canned products
          due to improved pricing and lower per unit cost principally as a result
          of operational improvements and higher gross profit in our Jordanian
          poultry business due to lower production cost.

Selling, General and Administrative Expenses

Selling, general and administrative expenses decreased $13.2 million to $177.2 million in 2012 compared with $190.4 million in 2011. The decrease was primarily due to lower legal expenses and lower executive compensation expense.

Gain on Disposal of Property, Plant and Equipment

Gain on disposal of property, plant and equipment of $0.2 million in 2012 was related to gain on sales of shipping related equipment, partially offset by losses on disposal of low-yield banana plants. Gain on disposal of property, plant and equipment of $3.1 million in 2011 was principally a result of the sale of shipping-related equipment and other surplus equipment.


Table of Contents

Asset Impairment and Other Charges
. . .
  Add FDP to Portfolio     Set Alert         Email to a Friend  
Get SEC Filings for Another Symbol: Symbol Lookup
Quotes & Info for FDP - All Recent SEC Filings
Sign Up for a Free Trial to the NEW EDGAR Online Pro
Detailed SEC, Financial, Ownership and Offering Data on over 12,000 U.S. Public Companies.
Actionable and easy-to-use with searching, alerting, downloading and more.
Request a Trial      Sign Up Now


Copyright © 2014 Yahoo! Inc. All rights reserved. Privacy Policy - Terms of Service
SEC Filing data and information provided by EDGAR Online, Inc. (1-800-416-6651). All information provided "as is" for informational purposes only, not intended for trading purposes or advice. Neither Yahoo! nor any of independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. By accessing the Yahoo! site, you agree not to redistribute the information found therein.