Dole plc (DOLE) Earnings Call Transcript

Welcome to Dole plc's Third Quarter 2026 Results Webcast. Today's webcast is being broadcast live over the Internet and is also being recorded for playback purposes. [Operator Instructions] For opening remarks and introductions. I would like to turn the call over to the Head of Investor Relations with Dole plc, James O'Regan.

Thank you, Derrick. Welcome, everybody, and thank you for joining our results webcast. Joining me today are our Chief Executive Officer, Rory Byrne; our Chief Operating Officer, Johan Linden; and our Chief Financial Officer, Jacinta Devine. During this webcast, we will be referring to presentation slides to supplemental remarks, and these, along with our earnings release and other related materials are available on the Investor Relations section of Dole plc website. Please note, our remarks that 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 these non-GAAP financial measures may be found in our press release, which also includes a reconciliation to the most comparable GAAP measures. With that, I'm pleased to hand over to Rory.

Thank you, James, and welcome, everybody to our latest earnings call as we discuss our results for the third quarter. So turning firstly to Slide 4. Our third quarter performance demonstrated the resilience of the group in what remains a challenging operating environment with adjusted EBITDA of approximately $84 million, which is 4% ahead of the prior year. Fresh Fruit delivered an improved result compared to the third quarter of 2025 despite continuing cost pressures. Diversified Americas and the rest of the world delivered another strong performance, while diversified EMEA was modestly behind what was a particularly strong prior year comparative. Stepping back and looking back over the last 18 months, we have taken some critically important strategic steps. The sale of our [Indiscernible] fresh vegetables division, the transfers of the way [Indiscernible] down to the state of Hawaii and more recently and importantly, the sale of the Ecuador port. Together with strong free cash flow generation during the quarter, these actions have considerably strengthened our balance sheet with net leverage reducing to 1.3x at the end of September. [Indiscernible] today is a more focused and resilient business with greater financial flexibility. This leaves us better positioned to progress our strategic and capital allocation priorities and to successfully navigate economic weather-related and other external challenges. In that context, at the beginning of July, we completed the acquisition of Green foods fresh produce business in Scandinavia. Integration is progressing well, and we are moving forward with our plans for the long-term development of the Healthy board facility acquired with the business. Over the coming years, we plan to invest in advanced warehouse automation and robotics technology, driving greater efficiencies across the combined business and further strengthening our platform in the region. We also continue to return capital to shareholders, investing $10 million in share repurchases during the quarter, bringing our total spend for the first 9 months to $24.6 million. Turning now to the operational review and beginning firstly with the fresh food slide on Slide 7. Fresh fruits delivered an improved result in the third quarter within a complex operating environment with year-on-year adjusted EBITDA growth of 6%. As we anticipated on our last earnings call, [Indiscernible] pricing mechanisms including fuel surcharges with our North American customers provided a benefit in the quarter and helped to offset some of the higher costs absorbed earlier in the year. Looking at our 2 main product categories in more detail, and firstly, looking at bananas. In North America, underlying banana pricing improved while volumes were lower. Supply was impacted by adverse weather conditions during the quarter, including the effects of El Nino. Against this backdrop, we remain focused on meeting customer requirements on maintaining our disciplined approach to profitability. In Europe, volumes remained strong, while pricing was broadly in line with the prior year. For pineapples, fruit availability continued to be impacted by adverse weather conditions, while production costs remained elevated, including from the continued strength of the Costa Rican colon. Looking ahead to the fourth quarter, we continue to face elevated input costs, particularly for fuel, shipping and freight together with the ongoing effects of the [Indiscernible] supply. With shipping fuel surcharge mechanism provide an offset in North America. In Europe, [Indiscernible] have the same level of protection. Higher shipping fuel costs will have an adverse impact of approximately $16 million for the full year relative to our original expectations for 2026. Despite these pressures, we still expect a year-on-year improvement in fresh foods in the fourth quarter, although at a lower level than we anticipated at the time of our second quarter results. Our focus remains on the areas within our control, commercial discipline, cost management and operational execution. Turning now to Diversified [Indiscernible]. This segment delivered another solid performance in the third quarter against a particularly strong comparative period. Our Scandinavian business performed strongly, and our focus is completing the greenfield -- fresh produce acquisition in July has been on integrating the business and progressing our longer-term plans for the Helsingborg facility. South Africa continues to be impacted by the conflict in the Middle East, and we expect this to continue into the fourth quarter. Overall, the segment continues to perform well, and we are targeting a result in line with the prior year. Turning to Diversified Americas. This segment delivered another strong quarter, continuing the positive momentum we saw in the first half and contributing strongly to group performance through the first 9 months of the year. Our North American business performed particularly well with positive volume development across a number of key product categories, including kiwis, avocados, grapes and tomatoes. The fourth quarter is an important period for the segment, marking the start of several key export seasons from Chile and Peru. Our focus is on executing well through these important programs as we close out the year. And with that, I'll hand you over to Justin to give the financial review for the third quarter.

Thank you, Rory. Turning firstly to the group results on Slide 11. I Revenue for the third quarter increased 3.8% to approximately $2.4 billion, driven by growth across both diversified segments and the net impact of M&A activity, partially offset by lower revenue in fresh fruits. On a like-for-like basis, revenue increased 2%. Gross profit increased by $13.5 million to [Indiscernible] while SG&A and expenses were $3.8 million higher. Operating income increased significantly to $88.9 million, primarily reflecting the gain recognized on the sale of our port facility in [Indiscernible] together with the improvement in gross profit. Net income increased to $48.3 million compared with $13.8 million in the prior year. This primarily reflects higher operating income, lower interest expense and the absence of losses from discontinued operations recorded in the prior year, partially offset by higher tax expense, mainly due to the tax arising on the [Indiscernible] port sale. Looking now at the non-GAAP performance measures. Adjusted EBITDA increased 4.1% to $84.1 million, driven by strong performance in Diversified Americas and Rest of World and an improved result in fresh fruit, partially offset by a modest decrease in diversified EMEA. Adjusted net income was $50 million, broadly in line with the prior year, while adjusted diluted EPS was unchanged at $0.16. Turning now to the divisional updates and starting with fresh fruit on Slide 13. Revenue decreased 8% to $818.7 million. The decrease was primarily due to tariff-related impacts, together with more banana volumes in North America and reduced pineapple supply in Europe. Adjusted EBITDA increased 6% to $28.8 million with improved banana pricing in North America and strong banana volumes in Europe contributing positively to the result. These benefits were partially offset by higher pineapple production costs and increased fuel-related shipping and logistics costs. As expected, fuel surcharges in North America provided a partial offset to the higher shipping fuel costs during the quarter. Turning to diversified fresh produce EMEA revenue increased 9.3% to approximately $1.1 billion, primarily driven by the acquisition of Scandinavia and higher underlying growth in the region, partially offset by lower revenue in Spain. On a like-for-like basis, revenue increased 4.1%. Adjusted EBITDA decreased 3.1% to $39.5 million primarily reflecting a weaker performance in the Netherlands and Spain, partially offset by improved performances in Scandinavia, Ireland and the U.K. On a like-for-like basis, adjusted EBITDA decreased 2%. Finally, Diversified Americas delivered another strong result in this quarter. Revenue increased 14.1% to $479.2 million, primarily driven by higher volumes in our North American business. The strong performance in our North American business drove the adjusted EBITDA increase of 22.8% to $15.8 million in the quarter. Turning to Slide 16 for a review of key cash items and net leverage. The quarter saw a strong operational cash flow generation of $132.2 million and $123.7 million in the year-to-date. Year-on-year improvement reflected lower seasonal working capital outflows, the timing of tariff-related inflows as well as lower tax and interest payments. Capital expenditure was approximately $21.8 million and we have spent $64.4 million year-to-date. Investment includes farming projects in Latin America and distribution facilities, ripening rooms and machinery related to blueberry and avocado packing in Europe. For the full year, we now expect capital expenditure of $90 million. Overall, we generated free cash flow of $110.4 million in the quarter, an increase from $66.5 million in Q3, '25 and year-to-date, an increase of $125.5 million. This strong free cash flow, along with the proceeds from the completion of the Ecuadorian port sale drove the reduction in net debt to $491.3 million, and net leverage of 1.3x at the end of the quarter. Looking forward, we now expect net debt and net leverage to finish the year at a similar level. This is a comfortable level of leverage with group and provides us with financial flexibility. Now I will hand you back to Rory, who will provide an update on our outlook for 2026.

Thank you, Jacinta. So as we move into the final quarter of the year, we are pleased with the resilient performance of our group in the face of an ongoing challenging operating environment. However, we continue to face higher input costs, particularly fueled and shipping costs, together with the ongoing impact of adverse weather conditions on fruit availability. While we continue to expect a year-on-year improvement in the fourth quarter, our expectations are now at a lower level than anticipated at the time of our second quarter results. And with that, we are now targeting full year adjusted EBITDA in the range of $380 million to $390 million from 2026 compared with approximately $400 million previously. Importantly, we are pleased with the group's strong cash flow generation year-to-date and the significant progress made in strengthening our balance sheet. This leaves us well positioned to execute against our strategic and capital allocation priorities including driving operating efficiencies across the group, investing in and expanding the business in a disciplined manner and delivering returns to shareholders. So with that, I'll hand it back to the operator to open the line for questions.

[Operator Instructions] Your first question comes from the line of Christopher Barnes with Deutsche Bank. [Operator Instructions] Your next question comes from the line of Pooran Sharma with Stephens.

I wanted to start off just maybe better understanding the change in guidance you've gone from approximately $400 million to midpoint of $385 million today, which is roughly in line with the [ $16 million ] of European fuel cost headwinds you called out. But I believe the $16 million is relative to your original expectations for the year when guidance was at least $400 million. So I just wanted to ask you, maybe help us understand how much of that fuel cost pressure is incremental from what you were saying last quarter? And more broadly, is the reduction in guidance primarily fuel related or are there any other operational factors we should be keeping in mind?

Thanks, Pooran. Yes, I mean the biggest single mover is definitely the fuel, and we just wanted to highlight that. If you look at even the basic Brent rate for 2025 with an average of something like $65 a barrel Q1 with the last -- with the last month, in particular, it went up to $78 a barrel Q2 up to $96, Q3 up to $90. And so far in Q4, that's a $106 million. So obviously, as against our original expectations, that's a huge impact on it. There's some other knock-on consequences in terms of cost with knock-on costs and fertilizer increases, some box increases. I think on top of that, we've just been a little bit unlucky in that the weather in particular and particularly in our pineapple business with the MDF, which is a technical issue that brings forward the production and gives us poor quality and smaller sizes [Indiscernible] but that has had a reasonably big impact. But the biggest single factor is definitely [Indiscernible] wanted to highlight that particular number as part of the adjustment in the guidance. But again, I think you stand back from us. You look at the world that we live in, you look at the radical nature of the change in some of the basic input costs. I think our teams have done pretty well to react more than satisfactory and as quickly as possible in that context.

Got it. I appreciate the color there, Rory. Maybe just shifting to my follow-up. Last quarter, we talked about fresh fruit historically being a 5% to 6% EBITDA margin business. But just thinking of the headwinds on fuel and even just supply availability, weather concerns. Do you anticipate at a high level, these pressures to kind of drag on to the first half of next year? Any sort of high-level -- any sort of high-level [Indiscernible] on how these factors will impact fresh fruit next year would be helpful.

Yes. I mean, obviously, we're pleased that Q3 is better than the Q3 of last year, and we're hoping that Q4 is also going to be better than last year. But just not quite as much ahead as we had originally anticipated. It's a bit early to be forecasting for '27. But I think the reality is that when we've had these kind of very radical inflationary increases by the very unusual events that the world has suffered, particularly around inflation on the fuel costs. It does take the fixed price contract aspect of the business, a little bit of time to get that properly reflected. In our North American business, there's been a long-established bunker surcharge clause that gives us ups and downs a few because it's the biggest single factor going into the equation, and that's worked well and is a well-established principle in the industry. So we're hopeful that in terms of the fresh fruit business reality in particular around yields and some falloff in yields expected going into '27 that the customer base, so there's been a huge amount of publicity within the industry, highlighting the issues from the different all of the production regions. And I think everybody is aware of it. And ordinarily, because they are industry-wide issues, the market reacts to it [Indiscernible] appropriately. So we're hoping that will be the case going into 2027.

Your next question comes from the line of [Indiscernible] with Freedom Broker.

To what extent has higher underlying banana pricing in North America covered increased fruit sourcing costs. As contracts renew, is there an opportunity to improve the spread between selling prices and sourcing costs?

Yes. Thanks for the question. Obviously, we don't -- just were legally precluded and getting into too much detail on a public call around pricing. But we do -- in answering Pooran's question there, I think most of our customer base is a mature industry, are very familiar with the underlying dynamics at the production side of the business and the cost side of the business. So ordinarily, we believe that the market should react in an appropriate way to adjust the pricing to reflect the current conditions. And that's certainly our objective going into 2027. That is what should emerge.

[Operator Instructions] Your next question comes from the line of Gary Martin with Davy.

Can you let me know if you can hear me just because I'm having some technical issues on my side here?

We've got you Gary.

Good to hear here. Hopefully, this question hasn't been asked already because I dropped off the call there briefly, but it would be good to get just a bit of a refresh on the capital allocation policy? And particularly, I think there's a slightly lower CapEx guide for the year. It would just be good to kind of run through the technicalities of that. Just how to extrapolate that or just in terms of just the different tenants of your policy moving into FY '27 and beyond?

Yes. I mean just in general terms on our policy on capital allocation, we do cover all of the different elements of capital allocation. So we've highlighted what we did on buyback. It's one tool in the [Indiscernible], we have excuses, a reasonable percentage of the overall buyback permission that we have. We keep an opportunistic approach to that. We've looked at our dividend. We've had our dividends steady in the guarantee. We have a lot of investors who are pleased with that. And then we have a lot of activity going on and looking at all of the investment activity within the business, and that's obviously a combination of replacement and maintenance CapEx. But more importantly then, we have a range of development CapEx opportunities that we're constantly studying and exploring. We look at some major acquisitions as well. But I think in the short term, the more likely outcome is around bolt-on acquisitions, just with the values in terms of making sure that we -- if we do an acquisition, it does clearly add value to the equation. So we've done a lot of work in getting our balance sheet into a much, much stronger position. The disposal of [Indiscernible] port, in particular, very important and significant valuable deal from a group perspective and that we realized the guts of a [Indiscernible] $100 million in cash with negligible impact on earnings. So it's rare to find those kind of deals. So we're very pleased with that. And I think all of those just gives us a little bit more flexibility in terms of all of the normal ongoing capital allocation analysis that we do, Gary.

That's really helpful. Just maybe as a follow-on, Rory. I know we've spoken in the past around the M&A pipeline kind of moving from weakness to strength to weakness, et cetera. I mean how does the kind of current pipeline look right now in terms of prospective targets out there in the market?