Del Monte looks to offset rising costs with higher fresh cut prices - CEO
Fresh Del Monte Produce has recently implemented price increases on its fresh cut products to help offset some of the rising costs it's facing across the fresh produce category, the company's CEO and Chairman said in an earnings call.
Speaking on an earnings call for the second financial quarter - in which Del Monte posted strong results including a sharp year-on-year uptick in profit - Mohammad Abu-Ghazaleh was asked about the impact of unprecedented supply chain pressures and rising costs banana growers and marketers.
"The cost pressures, it goes throughout the industry, not only just for bananas, but across the industry for anything that we talk about packaging, shipping, materials, fertilizers," he said.
"We use into our inputs in our kind of packaging and production in the field that has been impacted. However, we have taken several steps by increasing on the fresh cut price, on fresh cut supply. We implemented price increases in the last couple of months to offset some of this cost increase, which has helped us somehow."
"And as we go forward, we are looking at different ways to reduce the impact of the cost as well as hoping to be able to reach with our customers, ways to mitigate these cost increases by increasing our prices as well."
Abu-Ghazaleh also spoke about the difficulties banana growers and marketers continue to face in the markets as retailers use their leverage to push down prices.
He explained that there had been some "tightness" in the banana market in the first half of the year with supplies from Central America - especially Guatemala and Honduras - due to the hurricanes. This situation caused Del Monte to have to buy extra fruit from Ecuador to ensure that banana supply was constant in the market.
"There is no shortage in that site. And as we speak, we know that there is a pressure on the pricing in the banana in the market because of the supply and because of the leverage of the retailers over the industry players," he said.
"And it's unfortunate that we cannot find a mutual kind of a way to keep us as producers, marketers to survive in this kind of environment."
Relaxed Covid-19 restrictions boosted Q2 earnings
Del Monte last week posted a strong second financial quarter that saw a big uptick in gross profit, which the company has attributed to relaxed restrictions on social gatherings in key markets.
In the quarter ended July 2, Del Monte recorded a 40 percent rise in gross profit to $110 million, with the margin up from 7.2 percent to 9.6 percent.
Net sales increased 5 percent to $1,141.6 million, while net income more than doubled from $17.9 million to $47.2 million. Adjusted EBITDA was $83.6 million, compared with $63.5 million in the prior-year period.
“Our strong performance during the second quarter of 2021 reflects relaxed restrictions on social gatherings in some of our key markets, compared to the prior-year period,” Abu-Ghazaleh said.
“Our pineapple, fresh-cut fruit and prepared food products led sales and profitability growth, despite inflationary and cost pressures, which are expected to continue.”