Good day, ladies and gentlemen, and welcome to the Fresh Del Monte Produce Fourth Quarter and Full Year 2016 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions] As a reminder, this conference call may be recorded. I would now like to turn the conference over to Ms. Christine Cannella, Assistant Vice President, Investor Relations. Ma'am, you may begin.

Thank you, [Shakira] [ph]. Good morning, everyone, and welcome to Fresh Del Monte's fourth quarter and full year 2016 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 financial results press release we made public this morning, and you can find that release or register for future distributions by visiting our Web-site 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 the 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 the call over to Mohammad. Mohammad?

Thank you, Christine. Good morning, everyone. Our solid results in the fourth quarter of 2016 capped the year's outstanding financial performance at Fresh Del Monte Produce. Net income increased $117 million to $246 million, and we generated earnings per share of $4.74, up from $2.43 a year ago. We also achieved significant operational goals in 2016 and [sales] [ph] momentum across our global business [indiscernible], securing our position as one of the world's leading suppliers of healthful, wholesome and nutritious fresh [indiscernible]. [Indiscernible], we strengthened our dominant market position in the fresh-cut arena to meet rising consumer demand by opening new facilities in Europe and Asia, with more to follow. Secondly, we expanded our worldwide distribution center network, enabling us to bolster our delivery channel and offer new value-added services to our customers. This expansion allows us to target a wider range of new and existing customers [indiscernible]. Third, we added to our portfolio of products and continued to drive [indiscernible] diversification and innovation through initiatives that included fresh berries and ready-to-serve prepared meals in response to ever-increasing demand from consumers seeking convenient, high-quality ready-to-eat Del Monte [indiscernible]. In addition, in 2016 we strengthened our Company-owned berry and [indiscernible] production by acquiring farms in South America, as we made investments in replanting our mature farms and plantation, which would result in increased [yield] [ph], both improvement and efficiency. And finally, our successes throughout 2016 clearly show that the strength and steady execution of our strategic initiatives are [indiscernible] to the bottom line. We have always stressed that investing in Fresh Del Monte is the long-term [indiscernible], highlighted by our global vertically integrated infrastructure and diversification strategy. With these strengths and our extensive experience, we remain confident in our ability to provide profitability over the long-term. At this point, I would like to turn the call to Richard. Richard?

Thank you, Mohammad. For the year 2016, excluding adjustments on a comparable basis, we reported earnings per diluted share of $4.74, compared with earnings per diluted share of $2.43 in 2015. Net sales were $4 billion compared with $4.1 billion in the prior year, and gross profit increased to $461 million compared to $342 million in 2015. Operating income for the year was $266 million compared with $158 million in the prior year, and net income was $246 million compared with $129 million in 2015. For the fourth quarter of 2016, excluding adjustments on a comparable basis, we reported earnings per share of $0.26, compared with a net loss per share of $0.10 in 2015. Net sales were $955 million compared with $978 million in the prior year. And gross profit increased to $57 million compared with gross profit of $45 million in the fourth quarter of last year. Operating income for the quarter was $5 million compared with an operating loss of $6 million in the prior year, and net income was $14 million compared with a net loss of $6 million in 2015. Now as I turn to our business segments, I will only give fourth quarter statistics as reported. In our bananas business segment, net sales decreased $43 million to $431 million, compared with $474 million in the fourth quarter of 2015. The decrease was primarily due to lower industry sales volume in North America and Europe, along with lower selling prices in Europe. Overall volume was 9% lower compared with the prior year. The worldwide pricing was in line with the prior year at $12.94 per box. Total worldwide banana unit cost decreased 6% due to lower fruit and ocean freight costs. And gross profit was $5 million, compared with a loss of $25 million in…

[Operator Instructions] Our first question comes from Mitch Pinheiro with Wunderlich Securities. Your line is now open.

So I'd love to get your view on the current banana sort of supply and demand outlook here for the first quarter and maybe as far as you have visibility, like maybe the first half of the year.

Supply and demand actually started the year soft. Now we are seeing a pickup in the market in North America, across the world as a matter of fact. I see supply a little bit short in Asia, the Philippines, but not to the point of – I mean, it's not so critical. In the tropics or Central America, we have more or less enough supply. So, I see really a normal pattern here during the first half of the year in terms of supply and demand, except for the first part of the year. But otherwise, I see it as a normal trend, Mitch.

Okay, thank you. And then, Mohammad, you were sort of like crossing your fingers on the pricing outlook in North America for 2017. Could you give us any color with regard to that?

The pricing environment is very competitive with the renewal of contracts. It's not an easy game. I mean every year, it's a tough game to renew contracts because of the competitive landscape. However, in our case, we work very hard to better efficiency, to reduce our costs, as you can see from 2016. So we are working on this. I mean, the only area where we can improve is by increasing yields and reducing our costs and having a better pack-out, and that's exactly what we are doing and hopefully that we will always continue to pen out positive results.

So, as it relates to cost side, ocean freight cost in overall should probably be a headwind. Is that fair?

Slight, yes, slight, but not dramatic, but there is definitely some headwind into – last year was a complete ideal situation where bunkers were at the bottom, every kind of element or item in our business has been on the low side. So, you will see some headwinds, but so far it's not dramatic.

And then, you've done very well improving your fruit costs. I guess part of that is buying more or actually growing more of your own bananas, buying fewer from third parties, and I guess better yields in your own production. How does that look so far for the year, and will Panama, the new lands you'll start sort of opening in Panama, will that contribute at all in 2017?

Not in 2017, no, you will not see this in 2017. Hopefully 2018, because we are just finishing our contractual arrangements with the Panamanian government, and I believe we will be starting hopefully by midyear, third quarter, planting in Panama. However, we continuously work to improve our costs. And the most important thing is also allocating the volume at what time of the year, and that's very important in our business, because usually the end of the year is the most critical period and that's where we try to minimize the impact of that which really helps our annual or yearly results because of that. So, this is an area where we are working very hard to improve and correct.

Okay. And then just the last question and I'll get back in the queue, but regarding avocados, so obviously there was a tight supply in the fourth quarter, and pricing jumped, volumes were flat, but your business is really sort of a buy-sell business still in the avocados where you're making sort of I guess, like sort of a toll charge on the business, and how do you see the first quarter developing in avocados? Has supply and prices sort of normalized, are seed prices still being a little high? How do you look at that and does anything carryover from the fourth quarter?

No, the fourth quarter is history. But at the beginning of the year, prices eased a little bit, until the Super Bowl, which was great market in that period, there was a very, very strong market. However, post Super Bowl, we see a very strong tightening in the supply-side and we anticipate that prices will start going up again drastically going forward. And there is shortage in Mexico, there is also a big shortage in the next crop in California, and we see a shortage as well from Peru. So, I think there will be a very, very – in my opinion there will be a very strong market for avocado. How much is it for the market, I'm not sure, because we don't like to be too extensive in the prices because that means less consumption and less appetite by consumers to buy in a bigger way than their normal ways. So, we would have to wait and see how it will develop. We are in the market anyway. I mean be it high or low, but we are always in the market.

Okay. Thank you.

[Operator Instructions] Our next question comes from Jonathan Feeney with Consumer Edge Research. Your line is now open.

Can you update us on the size of the Middle East business and what's going on there, and how big do you think that will be in 2017?

Business in the Middle East is expanding. As a matter of fact, we faced – during 2016, one of our major headwinds was that shortage of bananas from the Philippines. So, last year was about $570 million total revenue. If we have the right volumes, because that's always there, the case is that they are always short in the first half of the year of bananas and even some pineapples, so hopefully that definitely we are diversifying, we are not just a banana company, we have so many things that is going on right now in the Middle East and diversification. We believe that our business going forward is going to increase at least 7% to 8% per annum in terms of growth.

Thank you. It's very helpful. With the great growth you've seen in the fresh-cut business, particularly in North America, would you say the categories you compete in are growing that fast or are you taking market share from others in the category?

Not really. I think that market share has a say into that but not to the point where we are growing our business by taking market share. We have introduced, we are introducing many new items. We have reached new buyer base and we are expanding the business. The business is expanding by itself. I mean, people are realizing today that it is more convenient to buy all our fresh-cut SKUs, be it on the retail side, foodservice side, convenience, and you name it, and our base is growing really. As a matter of fact, that's why we are expanding our actually fresh-cut operations across the United States, North America.

Thank you. Would you anticipate that rising fuel costs, bunker fuel, I'm thinking of even with pretty available conditions in ocean freight, will become an issue in 2017, and how has that worked out in the past? I mean, we've had falling energy prices for a while, now they are starting to bump up. Does that tend to squeeze your business or maybe impose discipline on growers who are less committed to marginal markets than you?

I believe, Jonathan, that so far the price of bunker fuel or whatever is it that we use in our ships or on their own has not gone by very significant amounts. It has increased definitely, but not to the point that we saw a few years ago when oil was at $140 and $150, $130. I don't believe myself, and I could be wrong, I don't believe myself that we are going to see anywhere close to these prices. I believe that the market will more or less stay where it is today, which is acceptable I mean for us in our costing.

Thank you. And just one other detail question as a follow-up, can you update us on about where you stand in 2016 on externally sourced bananas versus internally grown bananas, total volume?

Richard, do you have anything on that?

Yes, I do. Bananas at the ex, still 60-40, Jonathan, 60% independents.

Got you. Very, very helpful.

Remember, the Philippines skews that a bit, but yes, globally it's 61% actually independents, 39% Company.

But that's going to change as we go forward.

Company is going to go higher?

Yes.

Right, understood. Thank you very much. Great quarter.

Our next question comes from Mitch Pinheiro with Wunderlich Securities. Your line is now open.

Just a couple of follow-ups here, Mohammad, I was just curious, your view, your thoughts on we've seen now Sumitomo is buying Fyffes, Chiquita was bought a year and a half ago or so or maybe two years ago, and I'm just curious, I mean you still look at these low single-digit, mid single-digit gross margins in bananas, yet these companies are buying the banana business, and I'm just curious what you think the strategics out there are seeing in bananas? I mean, are they anticipating an increase in consumption, an increase in profitability, why now, why are we just seeing a continuation of all these people buying the banana businesses?

Honestly, it's a very strange question because you have a point. But I think in the case of Fyffes, Sumitomo or Sumifruit, because they have their production in the Philippines, and what they are trying to do is to become an international player. And as we know, Fyffes only has presence in Europe and it doesn't have a presence or very, very minor in the U.S. or anywhere else. So, the only move, the reason for them to buy into Fyffes is trying to make an international presence or form something that could be, if you would like, 'multinational', which we will wait and see how this will develop. As far as Chiquita, when it was by Cutrale, actually Cutrale, they are business people, they understand how to run their businesses. So I wasn't surprised. That was a natural kind of progression for them. Other than that, we don't have too many players in this field. The only way that you will survive in this field, if you produce better, if you have a cheaper cost, if you know how to allocate your volumes at the right time of the year, and hopefully, because as I always say, bananas, it's the biggest volume in terms of volume and in terms of revenue, but it doesn't mean that it is our powerhouse. It is not our machine that will generate income. As I say always, in the pipeline as Fresh Del Monte we have so many things going on that in the future you will see that shift that we will continue with the bananas as being our kind of driving force, but it's not going to be our like the profit center that will take the Company to the new levels.

Okay, thank you. And then with regard to one thing on fresh-cut, are you getting any fixed cost leverage with your new facilities, was it you anticipate it being a drag this year as you fill the volume or you see leveraging your new facilities?

We have actually maxed out, as I told you. I mean, we are maxed out and we are expanding actually some of our existing facilities, where we can, and we are already building a new facility in Houston, Texas and we will have the mega project going on in the Northeast sometime end of this year, next year. So, we are expanding our footprint across the U.S. and that would give us even more leverage in delivering. And not only in fresh-cut, because don't forget that we are going now into the prepared meals, fresh prepared meals, protein salads, sandwiches, hummus, all these kinds of things are already being introduced to the market and they haven't yet shown any – it's in small volumes now, but as we expand and grow our business, this will be a very significant part as well of our business going forward.

And any contribution from new products in 2017, like blueberries, strawberries, how does that look for this coming year?

It will be but it will not be – I mean in the big picture, it will be really marginal, but it will be, definitely there we will have – we are building this business, we just started few months ago. Give us a couple of years and then it will be probably a good part of our business.

Okay. And then just final question is just on pineapples. It's a nice margin business for you. It's struggling a little bit. Looks like you had good volume but pricing declined.

I think the decline was of the volume as a matter of fact. So, the only reason for the price decline was because it was we had kind of a peak in our production during – and when that peak comes, everybody has that same peak. We are now working on adjusting this hopefully coming fall, but that doesn't happen over a month or two, this takes a year or even more to make – sometimes the markets change, market trends change. This production is not planned month to month. It's really usually a year or a year and a half or two years before. So, when you produce, you know that in this month you will have so much volume, or this week, because you are expecting the demand to be there. The trend and the markets have little bit changed, so we are trying to change this according to the market trend. Whatever happened in that fourth quarter was purely oversupply that had affected pricing, it has nothing to do with the market.

Okay. And then a final question here, in your fresh-cut business, how much of the fruit inputs are self produced versus how much do you have to buy from third parties?

In the case of pineapple, it's 100% by ourselves. In case of melons, watermelons, 100% by ourselves. Grapes, during the Chilean season, it's our grapes. So, it's a mix. The major items are 100% supplied. All the other items are sourced from either locally from, if it's California produced or we imported let's say mango, we import ourselves from Mexico, Peru, Brazil, whatever the source is. But the majority of our items are sourced internally.

That's got to give you a real significant price advantage?

It gives us the leverage not only for the pricing as a matter of fact, but the supply, the consistency of supply, the quality. I mean we have melons and we have watermelons that are specialty. I mean, these are items that are produced just by Del Monte. So, that's not only the volume but also the variety and the consistency and the quality of the fruit.

Okay, fantastic. Thank you very much. Appreciate the questions.

Our next question comes from Ajeya Patil with Evaluate Research. Your line is now open.

So, I just had one question. So basically you're planning a CapEx of around $160 million this year. Can you give us some specifics of that, as in, in which segment are you planning to do the CapEx and like is it mainly in the prepared food segment or the other fresh produce segment? And secondly, what kind of, in which areas and geographical locations are you mainly going to do that?

Are you talking about 2017 or last year?

This year, coming year, 2017.

2017, most of our capital expenditures will be mainly in farms mainly in Central America as well as in the Philippines, also putting up some plants, distribution centers. As I said earlier, we are building now out a distribution center in Houston. We are building up our avocado packing shed and distribution center in Mexico. And we have other projects going around the world in MENA region and in Europe as well into the fresh-cut operations. So, it's across the board, global.

Okay, thank you. And my second question is regarding your debt level. So the debt has decreased by around $30 million this year in 2016. Are you planning on reducing the debt further going forward or what kind of debt levels can we see? Like since you are expanding, can we expect you to take on more [vehicle] [ph], so now you will continue to reduce your debt?

We have a very strong cash flow. So, our debt more or less will be in the same region. It depends, if we go and buy back more shares in the market. But historically, our debt has been more or less at the same level. We don't believe in, go high leverage.

Okay, thank you. Those were my questions. Have a great day.

Thank you. I'm showing no further questions at this time. I would like to turn the conference back over to Mohammad Abu-Ghazaleh, Chairman and Chief Executive Officer, for closing remarks.

I would like to thank everyone today for attending our call and I hope that we come back to you soon with some good news. Have a good day. Thank you. Bye.

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