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Chiquita Brands International, Inc. (CQB)
Q3 2010 Earnings Conference Call
November 2, 2010 4:30 PM ET
Ed Loyd – Director of Corporate Communications and Investor Relations
Fernando Aguirre – Chairman and CEO
Mike Sims – CFO
Heather Jones – BB&T Capital Markets
Reza Vahabzadeh – Barclays Capital
Vincent Andrews – Morgan Stanley
Jonathan Feeney – Janney Montgomery Scott
Scott Mushkin – Jeffries & Co
Bryan Hunt – Wells Fargo
Previous Statements by CQB
» Chiquita Brands Intl. Q2 2010 Earnings Conference Call Transcript
» Chiquita Brands International, Inc. Q1 2010 Earnings Call Transcript
» Chiquita Brands International Inc. Q3 2009 Earnings Call Transcript
» Chiquita Brands International, Inc. Q4 2008 Earnings Call Transcript
At this time for opening remarks and introductions, I would like to turn the conference over to Ed Loyd, Director of Corporate Communications and Investor Relations. Please go ahead.
Welcome to Chiquita Brands International’s third 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’s Investor Relations Department at 513-784-6366.
Please note, our press release includes; reconciliation to US GAAP of any non-GAAP financial measures that we mention today.
Before we begin, let me 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 Reports on Form 10-Q.
Now, I’d like to turn the call over to Fernando Aguirre.
Thank you Ed, and good afternoon, and thank you for joining us today. We welcome the opportunity to provide insight on our third quarter results, discuss our expectations for the full year and highlight the progress we’re making to strengthen our business for the long term.
Let me start with our results for the third quarter, which has historically been the weakest performing quarter for the banana business. Overall, we reported a comparable loss of $7 million. Underlying business trends in the quarter were generally consistent with our expectations. However, the market headwinds were greater than we anticipated in areas beyond our control.
During the quarter, our North American business continued to be profitable. Steady pricing in the third quarter led to strong salad profit margins of a percentage of sales, although we were disappointed by lower than expected volumes, which continued to reflect retailer conversion to private label late last year and the beginning of this year. These results also included the completion of our planned incremental consumer marketing activities for the year.
In Europe, pricing in local currency averaged 6% higher for the quarter versus last year. However, this positive momentum slowed late in the quarter due to increased supplies from subsidized European and ACB sources that negatively affected pricing in the market. Combined with a lower average Euro exchange rate and higher sourcing and logistics costs, these factors led to a third quarter loss in Europe compared to the very strong results we saw in 2009.
Despite these conditions, we continue to be optimistic about the prospects of our business going forward. Looking ahead, we continue to expect 2010 to be the third profitable year in a row for Chiquita, despite one of the most challenging operating environments in Europe, and an increase in private label salad volume in North America.
We have executed a number of strategies that have helped us to continue to make progress in building Chiquita’s earnings power, even in a weak economic environment. We continue to diversify our business, reduce overheads, drive down borrowing costs, and expand our brands beyond our basic commodity business. Our ability to generate companywide profits when one of our segment is underperforming, in this case Europe, is in large part due to this strategy.
Let me share a few more insights about Europe and its impact on our full-year expectations. Recently we have seen banana supplies from Latin America tighten, while volumes exported from the subsidized European Union and ACB sources increased, which has the best pricing in Europe. European pricing is a key component in our outlook for the year, and the current pricing environment in Europe is well below our previous expectations. While we still expect to realize a significant improvement in our fourth quarter results compared to 2009, we have adjusted our full-year comparable income expectations through a range of $50 million to $60 million.
Despite our reduced expectations versus our original plans, we continue to manage the business with a focus on the long term, but we are very mindful of the need to also manage the short-term challenges. Let me explain.
First, we recently announced a leadership change to support the successful execution of our plants to revitalize our European business. Effective January 1st, Brian Kocher, will lead our European business. He brings a great track record from North America where he led the successful transformation of both, our banana and salad businesses, that have enabled us to significantly improve our profitability.
Brian helped to improve the fundamentals of our pricing model and the way we deliver exceptional quality service to our customers. We expect that under Brian’s leadership, we can regain our prior levels of profitability and maximize our premium brand position in Europe.