Fresh Del Monte: It's All About The Cash Flows, But Expect Volatility To Remain Present

Summary

• Fresh Del Monte was able to keep the damage very limited in the first half of the year as the company remained profitable and free cash flowing.
• The share buyback program was restarted, and FDP isn't wasting time buying more of its own stock.
• Seasonality means H2 2020 will be substantially weaker than the first semester, so all eyes will be on liquidity and capex levels.
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Introduction

Fresh Del Monte (NYSE:FDP) is one of the world’s largest producer, marketer and distributor of fruit products and although about two-third of its sales are generated in North America, the company is active all over the world, resulting in the company offering interesting exposure to several continents.

Source: annual report 2019

The first semester was very decent

In the first six months of the current financial year, Fresh Del Monte reported a total revenue of $2.2B, which is a 6% decrease compared to H1 2019. Fortunately, FDP was able to reduce its operating expenses by 9% as well which helped to keep the damage limited. Yes, the gross profit decreased sharply, but the result clearly wasn’t as bad as it could have been. The net income of $31.1M, of which $30.9M is attributable to the company’s shareholders, is relatively weak as well, but this is a direct result of the lower gross profit in H1 2020 whereas the company also booked an exceptional gain on a disposal in H1 2019 which boosted the results in the first semester of last year.

Source: SEC filings

Additionally, COVID-19 made things more difficult for Fresh Del Monte as it had to write off about $11M of goods, which couldn’t get sold in time. As some of the produce has a relatively long lead time (think about bananas being shipped from South America on a boat), it takes a little bit of time to rethink the logistical chain to make sure the supply side meets the demand side; so we should cut FDP some slack here.

FDP successfully protected its cash flows. It reported an operating cash flow (adjusted for working capital changes and the dividend paid to non-controlling interests) of almost $79M and after deducting the $36M in capex, the free cash flow result was $43M. Definitely not as good

Analyst’s Disclosure:I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.