This summary is based on the first quarter fiscal 2008 earnings call conducted by Chiquita Brands International, Inc. (CQB) on May 1, 2008.
Management:
Manager of IR: Ed Loyd
Chairman and CEO: Fernando Aguirre
SVP and CFO: Jeffrey Zalla
Key Investors Issues
- EPS were 72 cents per share compared to a loss of 8 cents per share last year.
- Earnings were $31.7 million compared to a loss of $3.4 million a year ago.
- Sales rose 6.5% to $1.27 billion from $1.19 million last year.
First Quarter Highlights
Net sales rose 6.5% to $1.3 billion.
- The company reported net income of $32 million, or 72 cents per share, compared to a net loss of $3 million, or 8 cents per share in the year-ago period. These results include $9 million or 20 cents per share in charges from the write-off of deferred financing fees as a result of successful refinancing, while the 2007 results included a charge of $5 million or 12 cents per share related to the exit from certain long-tem farm leases in Chile.
- The company reported operating income of $57 million, compared to operating income of $18 million in the year-ago quarter. This improvement was principally due to higher banana pricing in core markets, strengthening of the Euro, savings from the company''s restructuring program, and continuing recovery in retail value-added salads.
- Operating cash flow declined to a negative $13 million, a decrease from the negative $6 million in the year-ago period, due to increase in accounts receivable, resulting primarily from much higher banana pricing, especially in March, and a stronger Euro exchange rate.
In Banana Segment, year-over-year sales rose 12% to $584 million and operating income rose to $61 million from $33 million in the year-ago period.
- Segment operating results benefitted mostly from higher local banana pricing in Europe and North America as well as the favorable impact of the Euro. These benefits were partly offset by much higher industry costs, in particular for purchased fruit and fuel.
- In North America, year-over-year pricing increased 18%, due to increases in base contract prices and fuel-related surcharge, as well as the implementation of a temporary price surcharge to mitigate higher purchased fruit costs due to substantially constrained industry-wide volume. Volume was down 1%. The month of April showed even higher pricing and volume that was above year ago.
- In core European markets, pricing was up 11% on a local basis and 26% on a dollar basis. Volume decreased by 14% year over year due to both tight industry volume conditions and continued greater focus on maintaining premium product quality and price differentiation rather than market share. Volume of Chiquita-branded bananas was down about in line with the total market while volume of second-label bananas was down. In the month of April, both pricing and volume trends improved compared to the first quarter. However, the company has begun to see lower pricing during the last several weeks, following the normal seasonal trend.
Salads and Healthy Snacks Segment net sales increased by 12% from the year-ago quarter to $327 million.
- Operating income was $7 million compared to $1 million a year ago. Operating results benefitted because the costs of a freeze a year ago did not repeat, and the company achieved higher pricing and volume in retail value-added salads. These benefits were partially offset by higher industry and other product supply costs.
- Net price per case in value-added salads rose 2%. Including Verdelli, increase in total volume was approximately 11%. On a comparable basis, excluding Verdelli, value-added salad volume in the period increased 4%, reflecting the continuing recovery of the category. In April, pricing trends were similar and volume grew at a slower rate.
In Other Produce Segment, net sales decreased 5% to $360 million.
The quarterly operating loss was $1 million compared to an operating loss of $3 million a year ago. The improvement was primarily due to the absence of $5 million of exit costs from Chile a year ago, partially offset by higher spending to expand Just Fruit in a Bottle in Europe.
The company continues to expect to generate improvements in sales and operating income, especially in the first half of the year, primarily due to contract and market price increases as well as restructuring plan and internal cost savings initiative.
The company continues to estimate capital expenditures for the full year to be between $60 million and $75 million compared to $64 million for 2007. Fuel hedging positions, which provide about 65% coverage through January 2010, would generate a $30 million gain in 2008 based on current forward rates, an improvement of $18 million compared to 2007.
The company realized a gain of $6 million on fuel hedging. To mitigate foreign currency risk, the company hedges net Euro cash flow exposure.
For 2008, the company is about 70% hedged with options that provide downside protection at an average rate of $1.40 per Euro, and that would limit upside above an average rate of $1.56 per Euro. Based on current Euro forward rates, the company estimates hedging costs at approximately $16 million for 2008, an improvement of $3 million compared to 2007. For the first quarter, Euro-hedging costs were approximately $5 million.
- Current estimate includes both much higher spot prices in Ecuador and higher contract prices in other countries. About 40% of estimated year-on-year increase is fuel cost, as measured in relation to current market forward rates, which are also at near-record levels. About 10% of estimated increase comes from fertilizers, paper, and charter rates. Current estimate includes much higher fertilizer prices, which have risen dramatically in recent months.
