In the spotlight: Analysts welcome Chiquita turnaround plan

By Michelle Russell | 10 August 2012

Chiquita has said it will "rebalance" its structure by "strategically transforming the company to a high volume, lower cost operator"

Chiquita has said it will "rebalance" its structure by "strategically transforming the company to a high volume, lower cost operator"

Chiquita Brands International's plans to pursue a new strategic direction with a focus on driving profits in its core businesses garnered a positive reaction from analysts this week.

The fresh produce multinational has said it will "rebalance" its structure by "strategically transforming the company to a high volume, lower cost operator" through US$60m in annual cost savings.

The restructuring is expected to reduce expenses and focus its resources on bananas and salads. There will be a focus on increasing volumes, reducing operating and administrative costs, and "aligning investment opportunities for both business units", Chiquita said.

The new strategy has led to Chiquita and CEO Fernando Aguirre deciding he should step down after nine years at the helm.

"Given our change in strategy, Fernando and the board decided to conduct a thorough search to identify the best candidate to serve as Chiquita's next CEO and to jointly execute an effective and smooth leadership transition," director Kerrii Anderson said.

The changes will, meanwhile, result in the loss of senior management positions, although the company did not reveal any further details.

Janney Capital Markets analysts Mark Williams and Jonathan Feeney welcomed the change of direction.

"Chiquita's new focus on maximising cash flow and reducing debt represents a welcome pivot from last quarter's turnaround strategy that was centred on acquisitions to increase scale in the salads business."

In the firm's first-quarter results in May, the company said it had adapted its structure and strategy in salads to be "more successful and profitable" after comparable operating income in its salads and healthy snacks business declined to $2m from $6m in 2011.

In the second quarter, however, comparable operating income increased to $11m from $4m in 2011 as a result of manufacturing improvements.

Williams and Feeney said Chiquita's new strategy of cutting costs and focusing on its core existing businesses offers "better visibility" to gradual debt paydown and afford the company better success in achieving its planned $60m in annual cost savings by the end of 2013.

BB&T Capital Markets analyst Heather Jones said "aggressive action" was required and "arguably should have come sooner ... given the plunge in the shares since the Q1 call and the rapid deterioration in earnings".

On Wednesday, the company reported it had swung to a first-half loss as a drop in sales and higher sourcing costs hit profits.

The firm booked a net loss of $6m compared to earnings of $102m last year, while sales dropped 4.1% to $1.63bn. Chiquita blamed lower pricing for bananas and a decrease in the Euro for the decline.

Chiquita's share price has fluctuated from a high of $5.70 in May down to $4.66 mid-June and a low of $4.75 in July. The share price began edging up again to $4.85 come August and only surpassed its May price to hit $5.79 yesterday on the announcement of its turnaround plan.

Nonetheless, Jones sounded an upbeat note on the new strategy.

"We welcome the cost initiative, which should also help on the volume front as it lowers the breakeven cost of the company, particularly in the salad business. Salad volumes are about 30% below the 2009 run-rate, but the cost structure is now meaningfully lower, so we do not believe the company needs to achieve 2009 volumes to reach its 7%-8% target."

The company has said it is targeting operating margins of 4% for bananas and 7-8% for salads.

Jones did, however, sound a cautious note. "We believe the next several quarters will be challenging given the current challenges in the salad business and the weak Euro. The company is working to address volumes in the salad business, but we worry that significant new wins there may be more difficult to obtain than believed given a very competitive environment."

Outgoing CEO Aguirre, who will remain a shareholder in Chiquita, admitted the targets laid out this week are "aggressive" but believed they are "achievable".

"We do not believe our current period results are indicative of our long-term earnings power and we set forth long-term financial targets that clarify our belief of the earnings power of our businesses over the next 24 months to 36 months," he told analysts on the firm's earnings call this week.

"I will continue to dedicate my heart and soul and every ounce of energy within me to deliver the results that we all want."

Sectors: Financials, Fresh produce

Companies: Chiquita Brands International

View next/previous articles

Currently reading -

In the spotlight: Analysts welcome Chiquita turnaround plan

There are currently no comments on this article

Be the first to comment on this article

Related articles

US: Chiquita CFO Kocher set for new COO role

US produce giant Chiquita Brands International has appointed CFO Brian Kocher to the newly-created position of COO as it looks to restructure the business.

Quote, unquote: just-food's week in words

just-food last week spoke with UK Secretary of State for the Environment, Food and Rural Affairs Owen Paterson on his return from China where he spearheaded a mission to develop the UK's presence in the market. He spoke to just-food about the UK government's vision to grow overseas food sales. Elsewhere, Sainsbury's chief executive Justin King outlined the retailer's progress to date on its 20 by 20 sustainability targets, while Hostess Brands revealed it had been given the green light by the US Bankruptcy Court to wind-down its operations.

just the answer: Wouter Van Cauwenbergh, Chiquita Brands

Fresh produce companies are increasingly looking to develop their value-added offering in order to boost margins and Chiquita Brands International is no exception. Wouter Van Cauwenbergh, senior sales manager for the company's operations in the EMEA region, spoke to just-food about the company's ambition to develop a value-added consumer focused business.

Read further items in this columns

In the spotlight

Which manufacturers, retailers or issues are grabbing the headlines?

Welcome to the home of food information, insight & intelligence

Not a member? Join here

Decrease font sizeDecrease font sizeDecrease font size Increase font sizeIncrease font sizeIncrease font size Comment on this article Email this to a friend Print this page