Christine Cannella - Assistant Vice President, Investor Relations Mohammad Abu-Ghazaleh - Chairman and Chief Executive Officer Richard Contreras - Senior Vice President and Chief Financial Officer.

Brett Hundley - BB&T Capital Markets Eric Larson - CL King.

Good day, ladies and gentlemen, and welcome to the Fresh Del Monte Produce first quarter 2014 conference call. (Operator Instructions) Now, I'd like to turn the call over to Christine Cannella. Ms. Cannella, you may begin..

Thank you, Kevin. Good morning, everyone, and welcome to Fresh Del Monte's first quarter 2014 conference call. Joining me today are Mohammad Abu-Ghazaleh, Chairman and Chief Executive Officer; and Richard Contreras, Senior Vice President and Chief Financial Officer.

This call complements our first quarter 2014 press release, we made public this morning. And you can find that release or register for future distributions by visiting our website at www.freshdelmonte.com and clicking on Investor Relations.

This conference call is being webcast and will be available for replay approximately two hours after conclusion of this call. Our press release includes reconciliations of any non-GAAP financial measures we mention today to their corresponding GAAP measures.

Before we start, please remember that matters discussed on today's call may include forward-looking statements within the provisions of the Federal Securities Safe Harbor laws. Forward-looking statements involve risks and uncertainties, which are more fully described in today's press release and our SEC filings.

These risk factors may cause actual company results to differ materially. This call is a property of Fresh Del Monte Produce. Redistribution, retransmission or rebroadcast of this call in any form without our written consent is strictly prohibited. Let me turn this call now over to Mohammad..

Thank you, Christine, and good morning, everyone. Net sales for the first quarter of 2014 were 7% higher year-over-year, at $982 million.

Highlights included higher banana, pineapple and non-tropical sales volume in North America, increased banana sales volume and pricing in the Middle East, higher sales volume in our prepared food business in the Middle East and favorable exchange rates in Europe.

It is important to note that the first two months of the quarter were extremely difficult, as we were severely impacted by extraordinary cold and severe winter weather conditions. In our business, we know things can change and some times change unexpectedly and dramatically, as we saw in the second half of 2013.

Our teams ability to meet numerous challenges and deliver strong improvements from both the fourth quarter of 2013 and also year-over-year, validates the execution of our long-term strategic initiatives, which remain aimed at expanding our global market position, enhancing our product mix and bringing our products closer to help consumer through new channel development.

I hope that the produce business will continue to be as good in 2014 and beyond. We have been asked about recent changes and pending consolidation in the industry. We applaud any activity that brings more rationality to the marketplace. In summary, we will continue to address the short-term challenges our industry faces.

We are well-positioned in our marketplace, as we continue to see ways to improve our performance. Our business is growing and we have the right strategies in place to continue to expand our helpful value-added product mix. We continue to invest in our vertically-integrated infrastructure as well.

We have the strength of skilled management, team and a strong balance sheet and asset base, along with the determination to provide good long-term returns to our shareholders. At this time, I will turn the call over to Richard.

Richard?.

Thanks, Mohammad, and good morning, everyone. For the first quarter of 2014, excluding adjustments on a comparable basis, we reported earnings per diluted share of $1 compared with earnings per diluted share of $0.71 in the first quarter of 2013. Net sales were $982 million compared with $919 million in the prior-year period, an increase of 7%.

Gross profit increased to $170 million compared with gross profit of $99 million in the first quarter of last year.

In addition, operating income increased 18% to $63 million compared with operating income of $54 million in the prior year and net income for the quarter increased to $57 million compared with net income of $41 million in the first quarter of 2013. Now turning to our segments.

In our Banana business segment, net sales increased $31 million to $437 million compared with $406 million in the first quarter of 2013, primarily a result of higher sales volume in the Middle East and North America. Net sales in Europe were also stronger due to favorable exchange rates and lower supply.

Overall, volume was 6% higher than last year's first quarter. Worldwide pricing increased 2% or $0.24 to $15.21 per box. Total worldwide banana unit cost increased 2%, primarily driven by higher fruit procurement costs and gross profit was in line with last year's first quarter.

In our Other Fresh Produce business segment for the quarter, net sales increased $20 million to $454 million compared with $434 million in the prior-year period. Gross profit increased to $65 million compared with $59 million in the first quarter of 2013.

In our gold pineapple category, net sales were $133 million compared with $119 million in the prior year with strong sales in North America and Europe, driven by increased volume. Our overall volume increased 16%, a result of favorable growing conditions in Costa Rica. Unit pricing was 4% lower and unit cost was 1% higher.

In our fresh-cut category, net sales decreased to $88 million compared with $99 million in the prior year. Net sales decreased primarily as a result of lower sales volume in Europe, due to the previously announced loss of business in the U.K. volume growth in Asia and the Middle East, with increased pricing in North America.

Overall, volume decreased 11%, unit pricing was in line with the prior year and unit cost was 2% higher. In our melon category, net sales decreased 1% to $51 million in the first quarter. Volume decreased 19%, unit pricing was 23% higher, as a result of tight industry supply and unit cost was in line with the prior year.

I should note that the majority of our gross profit increase this quarter is attributable to this year's offshore melon season.

In our non-tropical category, net sales increased 8% to $125 million compared with $116 million in the first quarter of 2013, primarily driven by the continued success of our avocado product line in North America and higher sales volume and pricing upgrades in Asia.

This increase was partially offset by lower sales volume of stone fruit, the result of a series of freezes that hit Chilean growing regions in the fall of 2013. Volume decreased 3%, unit pricing increased 11% and unit cost was 12% higher than the prior year.

In our tomato category, net sales increased 11% to $19 million compared with $17 million in the prior year. Volume increased 9%, pricing was 2% higher and unit cost was 4% higher.

We've recently began harvesting tomatoes in Florida from agricultural production land, we purchased late last year, making us a year-round producer and a major marketer in the North America fresh tomato market.

In our Prepared Food segment, net sales increased 15% to $91 million compared with $79 million in the prior-year period and gross profit was $2 million higher than the prior year. Now, moving to costs.

Banana fruit cost, which includes our own production and procurement from growers, increased 3% worldwide and represented 29% of our total cost of sales for the first quarter.

The increase in fruit cost was driven by higher cost paid to independent growers, partially offset by lower production cost on company-owned farms, primarily due to favorable exchange rates. Carton cost increased 9% and represented 1% of our total cost of sales. Bunker fuel cost decreased 4% and represented 5% of our total cost of sales.

And total ocean freight cost, which includes bunker fuel, third-party charters and fleet operating cost was in line with the prior-year period. For the quarter, ocean freight represented 13% of our total cost of sales. As for foreign currency, the foreign currency impact at the sales level for the first quarter was favorable by $7 million.

And at the gross profit level, the impact was favorable by $12 million. Other income net for the quarter was $700,000 compared with other expense of $2 million in the first quarter of 2013, primarily associated with foreign exchange.

In our stock repurchase program, during the first quarter, we purchased approximately 765,000 shares for approximately $19.8 million. At the end of the quarter, our total debt was $285 million. For income taxes, income tax expense was $6 million during the quarter compared with income tax expense of $10 million in the prior-year period.

As it relates to capital spending, we spent $51 million on capital expenditures in the first quarter of 2014 and we expect to spend approximately $120 million in 2014. This concludes our financial review. Operator, we can now turn the call over for Q&A..

(Operator Instructions) And our first question comes from Brett Hundley of BB&T Capital Markets..

Mohammad, I wanted to ask you a few broader questions and then maybe jump back in the queue and come back later. But my first, I'm asked about Panama disease, and honestly, I just don't have a good read on it clearly.

And when I talk to people in the industry, it seems like it's a concern, but that people feel that proper measures are setup in Latin America.

But anyway, Mohammad, I wanted to get your read and feel for the situation? And if you think that the media is making a bigger deal out of this or if you think that this is something that the industry needs to react to and that you actually do have some concern to it?.

It's a catch-22. The media maybe has exaggerated the situation, but the situation exists and the danger exists. I have seen through my career, this disease have wiped out farms in Indonesia, in Sri Lanka, in other places. I have seen it myself. And it exists in the Philippines for the last 40-something years.

So it's not like something that doesn't exist. It exits and it's dangerous and it can wipe out crop, if not proper management. And it's very costly because what happens is that you have to keep replanting, replanting, in order to keep producing. And in some areas, even if you replant, does not turn out to be good and you cannot produce.

Now, is it going to wipe out the banana industry? That's a very doubtful question. Is it going to be dangerous? Yes. It could be negative? Yes. We as a company, I mean as Fresh Del Monte, we take all measures in order to be able to, hopefully, be proactive in terms of changing some varieties, from Cavendish into other varieties as we go forward.

We're doing that. And doing all the necessary, first-sanitary steps to hopefully avoid it or not to be affected by it. But it exists. It's spreading towards Africa, as you know in the news, its spread in Jordan. And it's more or less like the canker disease with the citrus in Florida, in Brazil, in the many areas.

I mean, you still have oranges, you still have citrus, but the damage is so great, that the added cost of production will be so substantial that that does not warrant and that's another question why this industry is suffering really and nobody is touching on that, the cost is keep increasing, even though we don't have the disease here, but the prices doesn't move, and I don't know where is this going.

I mean if the price doesn't really go along the cost increases, I don't see how the industry can survive for long-term to be honest.

And that's my worry, is that cost are overtaking prices by far and the market doesn't realize and the retailers and buyers don't realize this that one day they will end up with no fruit to sell, and they will lose that golden goose that they are milking out of it today. I mean that's the fact today..

And so it sounds, and I think you've called this before, but do you believe that more cooperation has to happen between the multinationals and the retailer side?.

I guess the multinationals are like sitting duck. The retailers unfortunately have the leverage on.

I am not talking only in North America, but across the world, and that's unfortunate, because at least North America is a little bit more orderly, however, the pricing is very poor, but in Europe it's even worse, because there you don't have any control whatsoever. And pricing is extremely poor.

I mean if you look at the first two months of this year, I mean January and February, I was seeing a very bleak picture for the first quarter, to be honest. And only in March, we started seeing these prices turning around dramatically and saved the quarter. If it wasn't for that, I don't think that would have had the nice picture as we see today.

And the prices in Europe today is coming down, again. And maybe in a months time or maybe in less, just as quickly as they turned around in March, to be positive side, they could turnaround in the other side, in the other direction in a couple of weeks. So we don't know really in this business how is it moving.

And unfortunately, if we see some good pricing or good appreciation by buyers, we wouldn't be discussing this and that's the situation..

I want to stay on that topic, but I also did want to ask you about pricing, because what's happening right now, honestly it's tough to gain a good feel for where pricing is headed. We see a number of countries that are having fairly solid yields and volumes.

We hear about efforts in Northern Europe, in particular, where pricing continues to be pressured, the North American market seems somewhat neutral, and the Med-markets have been very volatile and trying to gain a handle on it is tough.

We've seen Northern EU pricing coming a little bit here recently, but pricing across the continent, and particularly in South looks to be still somewhat net positive. Med-pricing looks like it remained strong. So I wanted to ask you if maybe its sounds like the stronger banana pricing that you've been seeing is more a function of currency.

So I wanted to get your opinion on what you're seeing in local terms around the world as far as banana pricing goes and what you expect going forward? And related to that I wanted to get some commentary just on what type of yield you're seeing on your farms, or if you don't want to speak specifically to that, just what you're seeing yield-wise across the industry compared to last year?.

As far as yields are concerned, we do have in our farms some improvements. I mean, there is no question that we have done some yield practices in order to improve yields.

But don't forget that these farms, talking about ourselves or the competition, these farms, most of them have been producing for tens of years, I mean that same land has been producing bananas for 50, 60, 70 and maybe more years. I mean, it didn't start yesterday.

And no matter what you do, you cannot go from, let's say, 2,000 boxes a hectare to 3,000 boxes a hectare, because even if you do whatever improvements you do, you can maybe get another 5%, 6%, 7% more at the most to improve your yields.

But these are the facts that the land is limited, the same land has been producing for the very long time and it's exhausted. Now, we have been lucky also with the weather here for the last, say, two, three years. We have been very lucky that we didn't had any kind of natural disasters, which have held us as well the production and the yields.

Aside from that, pricing, I don't think that the pricing has improved a little in Europe. If you look at last year and this year, I mean the same year, the same time of the year, I think we have had better pricing last year. Exchange rates has helped yes, you're right. Worldwide, the pressure is there.

And I don't understand what is going on because Ecuador, that something is malfunctioning there because I see that huge volumes of fruit, both in Europe and the Mediterranean, and unfortunately there is no check on this fruit, because you can't see.

I mean I've said it before, maybe privately, but I would say publicly that the direct trade into the banana is becoming so common that even if you dump 100,000 or 200,000 boxes at low price, and there is other income coming from -- 50 times more from other type of product, that might also be very, very kind of, what would I say, a disturbing industry.

I mean that doesn't make, things are equal. Something is going wrong, something is really happening that I don't believe that it is proper business kind of environment..

And I have the same view and I was just wondering back to the trade discussion in general, you mentioned it in your prepared remarks, there is a couple of things supposedly in the works from an industry consolidation standpoint. One of them has been formerly announced.

And I'm wondering what your view is, you said that, you guys have a positive view on that industry consolidation as a whole, some of the things that are floating around up here, do you think that the consolidation that can take place is enough to improve trade conditions for the industry?.

If the players know really how to be rational, I mean, otherwise it will be just the same game.

I mean, where we know, if the rationality prevails, if really everybody wants really to take a position in order to make decent returns on their investments, his investment, our investments, I think it will make sense, otherwise I don't think that it will make any sense, consolidation or no consolidation, it even gets worst..

A question for you or Richard, is a consolidation effort something that the company would like to take part in, and I know consolidation is obviously in banana, or do you as a management team, as a board, et cetera, do you prefer to spend capital in other areas?.

If it wasn't for our other areas, I think that we would not have been able to deliver a quarter like this. I mean like Richard mentioned in his script or his remarks that melon was a very important factor in our performance this quarter.

And melon has been -- we have been challenged with melons for the last several years, but thanks God, this quarter we have had a very good results with melons. And that's actually has helped us tremendously in reaching these results. If it was only for bananas, I think that we would not have been able to do that..

Our next question comes from Eric Larson of CL King..

Mohammad, just a little bit on some of the previous questioning. Obviously, these things are evolutionary rather than revolutionary, per se. But how difficult or how close is it to come up with a new banana variety that is disease resistant, particularly to the Panama disease. And I know these things some times take years and years, if not decades.

But is there anything on the horizon that from a variety, from a genetic point of view, that could be developed over the next five or plus more years that would ease the pressure on the potential disaster you could have with Panama disease?.

As we speak, there is none. To change variety that can be able to counter that disease, we've not had yet. I mean nobody has.

We change the variety, just hopefully not to have the same -- I mean if you have the same variety for so many years, then it will be susceptible for disease, so we changed the variety in order to hopefully avoid or delay such an outcome.

But as we speak there is no other variety that is resistant to this disease, and it hasn't been done for the last 40-something years, where this disease has been existing for over 40s, actually in different parts of the world.

I mean let's take it this way, if this disease, god forbid, takes place in Central America, and if we say, we don't lose all the farms or lose 20%, 30% of production, which will happen, I mean definitely will happen.

What impact will it have on the supplies or what impact will it have on the markets, and that's the question that we have to ask ourselves..

These are all really interesting topics. I do want to get to another topic in the quarter. And obviously, we had talked a lot during the month of January and February, and it was a very, very difficult North American market, and hence, we all knew that North American earnings were going to be under some pressure.

Is there a way to quantify, either in sales or in margin, can you somehow quantify what the impact may have been in North America with kind of the disastrous weather that we had in the quarters? Can you give us some way to shape the impact on that?.

No, we cannot give you, really.

I mean, Eric, when we have roads closed in up Northeast, for instance, or we have roads closed in all over the country, we have to reshuffle logistics, for instance, shift that was supposed to go to club store in Philadelphia, and could not be loaded or could not reach even there, had to be the discharged, for instance, in Mediterranean and Florida.

And then it has to be trucked all that through, to be trucked up north, which some times costs $0.50 million extra or $400,000, $500,000, $600,000 extra to be able to reach. And this has happened during the quarter, on several occasions unfortunately, and even trucks could not -- the inland transportation was not available.

So you have to reshuffle and do things like this, which at the end of the day cost you money. And that's the kind of impact that we were faced to, not even to be able to deliver the fruit or the product to the retailer on time. And it was mainly logistical issues that have impacted us financially. And Europe, there was no weather-related issues.

The markets were very, very weak during January and February, as well as the Mediterranean markets were extremely poor. So like I said, we were lucky that the market changed to the better in March. And we had other products that could support us during the quarter..

I guess, the only good thing you can say about that is your setup for a fairly easy comparison next year, right.

With the exception of melons, I mean melons are setup for a hard comparison, but in the quarter and the whole quarter in total, your European banana pricing, was it actually down in local currencies?.

Yes. It was down slightly about 1%, I think..

So obviously, the currency impact obviously was a whole revenue gain. And then, you probably had positive currency comparisons in the Costa Rica colon in the quarter. And you had probably negative comparisons in the yen.

So did the yen have a significant negative impact on you in the quarter?.

It did have a negative impact, yes..

And then just one final question. One of the really nice surprises for me in the quarter also was the significant year-over-year improvement that you had in your gross profit margin in Prepared Foods.

Can you give us a little bit more feel for what may have been the driving factor there? Would your industrial business come back a little bit better? I know that over a year ago that that really had a tough profit quarter.

Is that some of the factors that may have led to a better gross margin in the first quarter here?.

Yes, that's true. The industrial has improved in pricing a little bit, not as much as we had stated, as we hoped. But yes, it did. And that's major part of the improvement..

We do have a follow-up question from Brett Hundley of BB&T Capital Markets..

I just had a few other questions. Richard, one of the things that I really struggle with, in trying to forecast the Banana segment, in particular for you guys is how costs are moving around? And I think you actually jokingly said before that that can be tough period for anyone.

But one of the things I have gone back and looked at historically is bunker fuel changes within your total ocean freight changes.

And so what I'll do is I'll back out bunker and I'll try and engage how the costs of your third-party charters and your fleet operating costs are moving? And one of the things that I was seeing over time, over the past three or four quarters or so was you were seeing big year-on-year increases in those other areas outside bunker.

However, for Q1 here, my back of the envelope math suggests that your cost associated with everything outside bunker were up very minimally.

And so, a, can you kind of bless that way of thinking? And then, b, is that sustainable, is there any type of color you can give me on the cost side within banana, as to maybe what was happening before Q1, and then maybe what changed during Q1 and can that be sustained going forward? I hope that make sense..

As far as the bunker, it's not really the charter or the fleet cost have fluctuate that much, it's also a function of where we're moving fruit to.

So for example, in the fourth quarter, because there was such an over supply, a lot of that fruit was being shift to areas where we normally would not ship it under a perfect or under a better supply scenario. So that increases the cost per unit as well.

Where in the first quarter here, we had more better supply situation with lower supply, so we ship it more to just the ideal market, so that fluctuates more so. We did had some repairs in the past on some of the ships, but that causes more of a fluctuation than the time charter and the vessel operating cost..

So you're still talking specifically within the bunker category?.

Yes, excluding the fuel. I'm talking about the ocean freight..

So ocean freight x fuel, you're saying really the function of just volume, and that was actually part of the question I had too, was just if you're going further into the Middle East with added volume, so there's just added cost there? Are you not getting the same type of price coverage in some of those markets? I guess to your point, they are not traditional markets and so you're not getting the same type of price coverage there, offsetting the added cost?.

Not during periods where there is an over supply, no. And on your banana fruit cost question, the problem as Mohammad alluded to is that the price we pay growers for food just continues to increase..

Mohammad, I wanted to ask you this. I think you've always said that you like having your shipping fleet. And one of the things that I've constantly thought about, as an issue across the trade, especially with how much pressure the retail set has put on the industry as a whole.

One of the things that I always thought could be an option towards potentially helping you with supply is having a shipping fleet that would more appropriately match supply and demand.

Have you ever thought or would you ever think about monetizing your shipping fleet, which could obviously raise some money for investment elsewhere, and then potentially also allow you to better match supply and demand, because you don't have a big fixed asset base that you have to fill.

Do you think that I'm looking at that incorrectly or can you just respond to that?.

From a theoretical point of view, you are right. I mean that has been done from one of our competitors, 10 years back or more, that they sold their fleet and monetized. But I don't think that in the long-term it's a very good alternative. It might be short-term, it could be very tempting and attractive, but in the long-term it's not right.

However, if you look at our fleet compared to our volumes, and not only bananas, but everything else, it's really a partial part of the total movement. I mean, we do charter third-party ships a lot. We do move huge number of containers with third-parties with different shipping line. So we cannot, let's say, be 100% dependent on third-party carriers.

We have to have a base fleet, which we do, can be utilized better and can be improved, yes, I agree with that. And I hope that we can do this, as we go forward. But to be dependent 100% on third-party carriers, I would think that that would be a wrong approach to do..

And then, I just had two questions on fresh-cut. One was kind of more high level, and then the first one here is more specific.

So the business in Europe that you talked about on some loss business there, do you still feel confident that you can regain that business either regaining the actual account or wining new business? When do you think we should expect to see fresh-cut volumes start to look a little bit better?.

Hopefully, sometime in the third, fourth quarter. That's what we anticipate..

Q3, Q4?.

Yes. That's what we hope for..

And my broader question on fresh-cut. It still seems like a very strong business overall. I ask this question with more of a North American view.

But I wanted you to talk a little bit about your fresh-cut strategy? Do you still expect grocers to be willing to pay for third-party sourcing? Are you seeing grocers move more to any type of in-house sourcing production? Is there any concern over a private label push by grocers and what that might do to pricing? You had very good growth prospects as a category, but I just wanted to get your thoughts on kind of the competition within the fresh-cut market?.

Yes, you're right. I mean we are seeing grocers coming in and out. They come, they say supply us, then they realize, no, we can cut in-house and save 20% or 15% or whatever percentage. The business is that we deliver 10-plus fruit into fresh-cut forms.

In the grocers, the mentality and the philosophy is that, no, it's the fruit that demands on the shelves that should be cut and put into containers. And of course, there is a big difference between cutting Class A fruit, topnotch quality, rather than average quality. That's number one.

Number two is that we do have all the standards and the hygienes that no one else can have in a grocery.

So you can imagine that if you cut this in the kitchen or the backyard or whatever, at the grocery level, what it means to -- so we see a lot of movement that we see a lot of grocers going and changing their mind going into their own cutting, and then maybe one year later or few months later getting back and say, no, we better have your product.

And so on, it's a continuing process. It's not that 100% that they are dependent on us, and it's not 100% that they can cut their own fruit. And so it's a matter of probably leveling process and I think it will take some years for that to settle down that this is a business that has to be done on a professional and at more systematic level..

And just one last one, and I'll hop.

Richard, the increase in pine volumes in the quarter, can you give me an idea what acquired volumes made up of that increase? Were acquired volumes half of the volume increase year-on-year more than that? Do you have a sense for that?.

No, it still continues to be mostly our own volume..

So that's mostly your organic growth on the pineapple side?.

Well, that fluctuates based on yield and stuff. Yes, still 80% of the volume is our own..

Don't forget that we acquired a farm late last year from Banacol..

I was just curious what Banacol -- I was trying to get a sense for what Banacol may have added?.

Not much yet. We're still getting it to be Del Monte quality and Del Monte practices. It takes over a-year-and-a-half to grow pineapple. So it will be a little bit before we get them up to all of our standards..

Mr. Abu-Ghazaleh, I'm not showing any further question at this time. Please proceed with any further remarks..

Well, I would like to thank everyone on the call. And hope that we can deliver good news as we go forward. And look forward to talk to you in July. Thank you..

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program. You may all disconnect. Everyone have a great day..