Chiquita (NYSE: CQB) Looks to Harvest Fresh Growth

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With seasonal apples virtually everywhere here in Vermont it's almost impossible not to think about the importance of fresh fruit in our diets. Of course, as an independent investor I spend as much time considering potential ways to profit from the fresh food movement as I do putting together recipes that feature these tasty treats.

I've recently turned my attention toward consumer staples companies that may get a boost from the fresh food movement.

Cruise down the supermarket produce aisles and check out the fruit prices. Whether you're at a Walmart ( WMT ), Safeway ( SWY ) or Kroger ( KR ), value shoppers are likely to notice one thing - bananas are the cheapest fruit on the shelves. They are ridiculously cheap.

Value shoppers and value investors alike may want to take a closer look at one small cap stock that has the potential for growth - whether banana prices go up or not. If recent announcements from Chiquita Brands ( CQB ) prove accurate, there could be a fresh outlook for this consumer goods small-cap stock.

***Few companies have such an iconic logo as Miss Chiquita - in fact she's been around since 1944 as the marketing symbol for the world's first brand of bananas. For years, she was an animated face in the company's TV commercials.

While Miss Chiquita has changed over the years, so too has the company. Chiquita traces its roots to fruit-trading seafarers in the 1870s. But despite its storied history, well-recognized name and popular marketing logo, the company has remained a small-cap stock - it even faced a Chapter 11 restructuring in 2001.

Chiquita is no longer just bananas. The company's product lineup has evolved over time to include fresh salads (under the Fresh Express name), along with fruit snacks and smoothies. In 2009, bananas accounted for 72 percent of its operating income, with salads and healthy snacks making up 25 percent and other products rounding out the remaining 3 percent. Just four years earlier, bananas accounted for 98 percent of operating income.

If you want fresh fruit but carefully control your food budget, bananas are a great buy. That's great for consumers, but challenging for producers. Pricing pressures have kept a chain around the share price of Chiquita and some of its competitors - including Dole Food (Nasdaq: DOLE) and Fresh Del Monte Produce ( FDP ). Of the three, Chiquita represents the best opportunity for investors right now.

***When the company reported earnings per share of $1.40 for the second quarter it easily beat estimates of $1.10. However, Chiquita also cut its revenue prediction for the year to a slight contraction from previous guidance of 3 to 5 percent growth.

The company said the recession was still a factor, but it clearly suffered on European currency exchange rates due to the weak U.S. dollar. Still the share price is up 8 percent in the past three months, despite being down 20 percent year-to-date.

Chiquita primarily harvests its bananas from Central America and the Caribbean. Weather and other factors have not hurt the region this year so banana production is up. In fact, Costa Rica reports that its 2010 banana harvest is up 18 percent as compared to 2009. Guatemala, on the other hand, is expecting a similar decrease in production this year due to recent rains.

But pricing pressure is still a challenge. It's not just the Caribbean region's growers who are feeling the pinch. Australia is another of the world's leading producers and a growers' group recently told the Australian Broadcasting Co. that its members can't survive when the retail price is below the cost of production. You don't need to be a financial analyst to figure out that business model isn't sustainable.

So Chiquita is angling into other products which offer higher profit margins, such as salads and smoothies. In a major recent announcement the company unveiled its new FreshRinse salad wash. According to the Wall Street Journal the new wash "... killed substantially more Salmonella, Listeria monocytogenes and E. coli 0157:H7 organisms than chlorine washes ... "

While the new product hasn't received a stamp of approval from the medical world just yet, the potential impact to Chiquita's bottom line could be big if everything the company claims is true.

***Chiquita has also made progress paying down long-term debt, and operating margins were up nicely in the first half of the year to 11.7 percent from 4.2 percent in 2009. Net income has grown an average of 10.5 percent from 2004 to 2009, while earnings have grown an average of 8.7 percent over the same period.

Three analysts who follow Chiquita call the stock a strong buy, and I'm throwing my hat in the ring with them. Bad weather and a weak dollar aside, it appears that Chiquita is making a stronger comeback than some of its fruit and veggie competitors.

The stock bottomed out under $5 back in the spring of 2009 and has rebounded nicely to close above resistance at the $14 level. Look for it to target $20, just above its 52-week high.

As a final note of interest, the first-ever world banana summit will take place Nov. 5-6 in the Philippines during the Davao Trade Expo. This event will provide insights into the industry, challenges that it's facing and also opportunities. Check it out at: http://www.davaotradeexpo.com/

Let me know what you think about Chiquita, or any other companies that have a foothold in the fresh food movement. My address is: editorial@smallcapinvestor.com



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Stocks

Referenced Stocks: CQB , DOLE , FDP , KR , SWY , WMT

Wyatt Investment Research

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