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Chiquita Brands International, Inc. (CQB)
Q1 2010 Earnings Call Transcript
April 29, 2010 4:30 pm ET
Ed Loyd – Manager, Corporate Communications & IR
Fernando Aguirre – Chairman, President and CEO
Mike Sims – SVP and CFO
Vincent Andrews – Morgan Stanley
Mark Blaine [ph] – Janney Montgomery Scott
Heather Jones – BB&T Capital Markets
Reza Vahabzadeh – Barclays Capital
Ed Aursh [ph] – Cantor Fitzgerald
Mike [ph] – Jefferies & Company
Previous Statements by CQB
» Chiquita Brands International Inc. Q3 2009 Earnings Call Transcript
» Chiquita Brands International, Inc. Q4 2008 Earnings Call Transcript
» Chiquita Brands International, Inc. Q3 2008 Earnings Call Transcript
Welcome to Chiquita Brands International First Quarter 2010 Earnings Conference Call. On the call today are Fernando Aguirre, Chairman and Chief Executive Officer and Mike Sims, Chief Financial Officer. After today's prepared remarks, we will take questions as time allows. If you have not received a copy of today's press release, you will find it on the company’s website at www.chiquitabrands.com or you may contact Chiquita Investor Relations department at 513-784-6366. Please note our press release includes reconciliation, U.S. GAAP of any non-GAAP financial measures we mention today.
Before we begin, let me also remind you that this call may contain forward-looking statements concerning operating performance or industry development and any such statements are intended to fall within the Safe Harbor provided under the securities laws. Factors that could cause results to different materially are described in the forward-looking statements of today's press release and in Chiquita’s SEC filings including its annual report on Form 10-K and quarterly report on Form 10-Q. Now, I would like to turn the call over to Fernando Aguirre.
Thank you, Ed. Good afternoon and thank you for joining us. We welcome the opportunity to provide more insight on our results for the first quarter of 2010, an update to our expectations for the year and highlight the progress we are making to strengthen our business for the long term. Our North American geography continued to perform well in the first quarter as the banana business sustained its recent profitability gains and salads continue to deliver year-over-year profit improvements even as we accelerated our innovation and consumer marketing activity.
However, as we previously announced, industry wide European banana sales were negatively impacted by the harshest winter weather in 30 years and depressed economic conditions which have effected European Commerce overall. These factors lead to lower consumer demand in European bananas with our volume declining by 13% and together with an increase in industry supply lead to lower local pricing, which was down by 11%.
In addition, we have also seen pricing pressure from retailers looking to extract price in anticipation of a lower European tariff later this year. All these unusual conditions lead to a narrow first quarter loss, our overall performance continues to demonstrate that we are making progress in diversifying our business overall.
Three years ago, this type of unexpected event in Europe would have derailed our ability to achieve profitability for the year. Today, however, we are able to use the continued cash flow generated from our other business segments to mitigate softness in one particular segment. This is a significant business model change for Chiquita that makes us more resilient and predictable in the future.
Let me be clear about what it means for us in 2010. Based on our diversification of cash flows by geography in business and despite some of the challenges we faced in the first quarter, we continue to expect full year comparable income of $110 million to $120 million this year, which will be higher than a year ago on our best result since 2005. Let me explain the rationale for our confidence to maintain our prior guidance.
First, we started a five-point plan weeks ago in Europe to improve pricing, execute significant cost improvements throughout our supply chain, permanently capture the majority of the pending European union tariff reductions, reduce our selling and administrative costs particularly in plant marketing spend and increase distribution.
The objective is to revitalize our European business and return its profitability to previous levels. Just as we have done with our North American businesses in recent years, we are making the difficult decisions and taking the necessary steps in Europe to ensure we achieve sustainable improvement.
Second, pricing in North American bananas continues to remain stable and is achieving our profitability targets. Moreover, in our salads business, we have created a sustainable operating structure for profitability that will consistently deliver results whether or not the broader category remains sluggish.
Third, we expect that industry banana supplies will tighten as we move into the second half of the year. Productively in Latin America as well in the Philippines is tightening due to the normal productivity cycle and droughts in certain countries which will lower yield of good quality bananas. In addition, we have also altered our contracting structure to carry less surplus seasonal fruit in the second half of the year than we had in 2009.
Fourth, as a result of the Danone joint venture, we will expand on dry profitability in European healthy beverages much faster and more efficiently. Since we launched Just Fruit in a Bottle four years ago, we have created one of the leading brands of fruit smoothie in Europe.