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Equity Bottom-Up

Fresh Del Monte Produce / Equity Bottom-Up

<p>Fresh Del Monte reported an excellent set of results for the first quarter [ended March] which were above our expectations. EPS for the quarter stood at $1.57, registering a growth of +97% as compared with the first quarter of last year. This steep rise in the EPS is basically due to the margin expansion. Net sales for the quarter were up 1% to $1,018 million, compared with $1,008 million in the first quarter of 2015. The increase in the revenues was mainly driven by higher sales in the company’s other fresh produce segment [+3%] and a marginal growth in the banana segment [+80bps]. Fresh Del Monte is struggling in the prepared food segment, which represents only about 7% of the overall revenues. The banana and other fresh produce segments have been a steady source of income and growth for the company during the past several years. The company remains prudently focused on improving gross margin, expense control and cash conversion.</p>
<p>Gross margin for the quarter was very strong at 13.8%, up by +390 bps as compared with the same period last fiscal, and was the highest gross margin level during the past 5 years. Strong gross margin reflected lower raw material input costs, lower transportation costs and tight inventory management. Lower oil prices have significantly benefited the company to strengthen its gross margin during this first quarter. However, we believe that the gross margin should come down to its normalized level of 9% as this high level of margin is not sustainable in the long run. We believe that there remains an opportunity to increase margins over time by cutting costs and adding higher margin products to the company’s existing product range. Such a strong gross margin performance was marginally offset by higher selling and marketing cost, which rose by +7% to $47.1 million during this quarter. Operating margin stood at 8.89% up by +330bps as compared with same period last year.</p>

Fresh Del Monte reported an excellent set of results for the first quarter [ended March] which were above our expectations. EPS for the quarter stood at $1.57, registering a growth of +97% as compared with the first quarter of last year. This steep rise in the EPS is basically due to the margin expansion. Net sales for the quarter were up 1% to $1,018 million, compared with $1,008 million in the first quarter of 2015. The increase in the revenues was mainly driven by higher sales in the company’s other fresh produce segment [+3%] and a marginal growth in the banana segment [+80bps]. Fresh Del Monte is struggling in the prepared food segment, which represents only about 7% of the overall revenues. The banana and other fresh produce segments have been a steady source of income and growth for the company during the past several years. The company remains prudently focused on improving gross margin, expense control and cash conversion.
Gross margin for the quarter was very strong at 13.8%, up by +390 bps as compared with the same period last fiscal, and was the highest gross margin level during the past 5 years. Strong gross margin reflected lower raw material input costs, lower transportation costs and tight inventory management. Lower oil prices have significantly benefited the company to strengthen its gross margin during this first quarter. However, we believe that the gross margin should come down to its normalized level of 9% as this high level of margin is not sustainable in the long run. We believe that there remains an opportunity to increase margins over time by cutting costs and adding higher margin products to the company’s existing product range. Such a strong gross margin performance was marginally offset by higher selling and marketing cost, which rose by +7% to $47.1 million during this quarter. Operating margin stood at 8.89% up by +330bps as compared with same period last year.

Fresh Del Monte Produce: 1QFY2016 Earnings Update