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Chiquita Brands International, Inc. (CQB)

Q3 2012 Earnings Conference Call

November 7, 2012 16:30 ET

Executives

Steve Himes - Director, Investor Relations

Ed Lonergan - President and Chief Executive Officer

Brian Kocher - Chief Financial Officer

Analysts

Reza Vahabzadeh - Barclays

Heather Jones - BB&T Capital Markets

Jonathan Feeney - Janney

Carla Casella - JPMorgan

Bryan Hunt - Wells Fargo Securities

Karru Martinson - Deutsche Bank

Presentation

Operator

Good day and welcome to the Chiquita Brands Third Quarter Earnings Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Steve Himes, Director of Investor Relations. Please go ahead, sir.

Steve Himes - Director, Investor Relations

Thank you, Amber, and welcome everyone to Chiquita Brands International's third quarter 2012 earnings conference call. On the call today are Ed Lonergan, President and Chief Executive Officer and Brian Kocher, Chief Financial Officer.

After today's prepared remarks we will take questions as time allows. A copy of today's press release is available on the Company's website at www.chiquita.com, and you may also contact Chiquita's Investor Relations department at 980-636-5637 to receive a copy. Our press release includes reconciliations to U.S. GAAP of any non-GAAP financial measures that we mention today.

The call contains forward-looking statements, regarding operating performance or industry developments, and any such statements are intended to fall within the Safe Harbor provided under the securities laws. Factors that could cause the results to differ materially are described in the forward-looking statements section of today's press release and in Chiquita's SEC filings, including its annual report on Form 10-K, and quarterly reports on Form10-Q.

And now, I'd like to turn the call over to Ed.

Ed Lonergan - President and Chief Executive Officer

Thank you, Steve. Good afternoon and thank you all for joining us today. I'd like to begin my first earnings call with Chiquita by sharing some of the reasons why I am excited to join the company and about our future as a leading player in this industry.

Chiquita serves a noble purpose in this world. Consumers enjoy our fresh fruits and salad products, and importantly, those products are good for them as well. In a world, where consumer products companies are scrambling to develop products that taste good and are healthy, we already possessed those attributes in our core. Additionally, Chiquita has a culture of corporate responsibility and a commitment to sustainability that is motivating to our customers and to our employees.

The opportunity is even more attractive when these products and this employee group are associated with one of the world's most recognizable brands with more than 100 years of history. As for Chiquita today, I like where the company is heading. We have made some difficult, but necessary decisions this year to better position our core portfolio to winning a competitive marketplace. I firmly believe that company's core businesses of fresh fruits and salads possess strong earnings potential and as well that the recent SG&A and efficiency choices are the right path to unlock this value. This decision to focus on our core enables us to allocate resources to cost reduction and innovation on our valuable scale businesses and to eliminate projects and initiatives that are less likely to deliver shareholder value in the near-term.

The strategic decisions in the restructuring activities described on the second quarter call will improve the competitiveness of our core and allow the company to increase revenues and reduce costs, which in turn will enhance margins and improve cash flow. It's important for you to know that I fully support the company’s announced intention to use increased cash flow to reduce our debt. In short, I joined the company, because I am passionate about the opportunities to deliver healthy products to consumers and drive an undervalued company to achieve its potential.

Now, let's take a few minutes to review the strategy shared on our last call and the progress we have made toward our vision. The company's performance in 2012 is not indicative of the earnings potential of our business. As discussed, we have implemented a strategy that we believe will create a sustainable enterprise and enhance shareholder value. As we said on the last call, you can expect our business to make strategic decisions to accomplish the following.

First and foremost, we've planned to increase revenue and profitability in our core bananas and salads business with particular focus on creating value for consumers and our retail partners. Second, we will drive our costs in our value chain – drive out costs in our value chain so as to be more competitive in our core markets. Third, we will align our overhead structure to industry benchmarks. Fourth, we will continue to evaluate and address non-core unprofitable businesses and minimize investment and diversification and innovation outside the core. And lastly, we will limit our consumer marketing investments to those portfolio products, vehicles, and geographies, where we can demonstrate a verifiable business return.

We are confident this strategy will enable Chiquita over the next two to three years to achieve the target operating margins discussed on our last earnings call. That is 4% operating margin in bananas and 7% to 8% operating margin in salads. It's also worth repeating that while we will certainly continue to refine the strategy as we move forward, I completely support the decisions that have been made in the recent past and believe our choices create a vibrant future for Chiquita brands.

So, now let me provide a brief update of the progress made since our last earnings call. Where to play decisions aligned to our new strategy have been made, and a difficult restructuring has been executed with speed. Most importantly, our new strategy is already paying commercial dividends. In our North American bananas business, we have won new business we have won 2013 contracts equivalent to high-single digit volume gains versus our 2012 base. Much of this distribution is earned from returning customers that value our brand and appreciate our new strategic direction. The new volumes in light of our value chain efficiency actions are at accretive terms that will ultimately help Chiquita to achieve our target margin for bananas. We view these wins as validation of our banana strategy.

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