•  Loss rises to US$67m
  •  Sales slide
  •  CEO claims "progress" on new strategy
Chiquita to focus on core business

Chiquita to focus on core business

Chiquita Brands International has said its third-quarter net loss more than doubled amid falling sales and restructuring charges.

The company said net losses rose to US$67m, up from $29m last year. Sales dropped to $714m, down from $723m in the year-ago period.

However, Chiquita attributed the majority of its profit decline to one-off costs associated with efforts to restructure the business. During the period, the company registered a charge of $16m related to restructuring activities, as well as $28m in impairment and related charges for an investment in Danone.

Nevertheless, newly-appointed CEO Edward Lonergan remained upbeat.

"Chiquita's third quarter results exceeded our internal expectations," he commented. "While it was a challenging quarter, we made progress in positioning the company for future growth by becoming more competitive in our core banana and salads businesses."

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CHIQUITA REPORTS THIRD QUARTER 2012 RESULTS
  • Third quarter comparable loss of ($0.47) per diluted share; GAAP loss of ($1.45) per diluted share 

  • Reaffirms previously announced strategy to focus on core Banana and Salad businesses; Restructuring nearly complete 

CHARLOTTE, N.C. - November 7, 2012 - Chiquita Brands (NYSE: CQB) today released financial and operating results for the third quarter of 2012.  The Company reported GAAP net loss of $67 million on net sales of $714 million and comparable net loss[1] of $22 million. For the same period in 2011, the company reported GAAP net loss of $29 million on net sales of $723 million and comparable net loss of $16 million.  The 2012 third quarter GAAP net loss includes, among other items, $16 million ($12 million net of tax) in charges related to previously announced restructuring activities, $28 million in impairment and related charges for the company's investment in the Danone Chiquita Fruits SAS ("Danone JV") and $6 million ($4 million net of tax) in charges related to the company's headquarters relocation.  The 2011 third quarter GAAP net loss includes, among other items, $11 million of refinancing costs.

"Chiquita's third quarter results exceeded our internal expectations.  While it was a challenging quarter, we made progress in positioning the company for future growth by becoming more competitive in our core banana and salads businesses," said Edward F. Lonergan, Chiquita's newly appointed president and chief executive officer.  "Although certain fundamentals suggest that supply and demand in bananas is becoming balanced and prices are rising, we face difficult pricing comparisons to 2011, particularly with respect to the impact of euro exchange rates, which, by itself, negatively impacted year over year income comparisons by $10 million for the third quarter.  In salads, our retail volume reductions as compared to the year ago periods have narrowed since the beginning of the year, and we believe that our entry into private label and additional salad products will further improve our results in 2013."

Lonergan added, "Chiquita made some difficult but necessary decisions this year prior to my arrival.  Focusing on the core businesses of bananas and salads is the correct strategy for the company at this time.  I am committed to the strategy and believe these decisions will benefit stakeholders in the long run.  We continue to believe the long term operating income margin targets we presented earlier this year are achievable in the next 24 to 36 months, and we are already seeing improved results from the new strategy.  We have seen important customer wins in both bananas and salads, and most of the restructuring activities are already complete."
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[1]Comparable basis amounts exclude certain items described below under "Non-GAAP Measurements and items affecting comparability."

2012 THIRD QUARTER SUMMARY

The following table shows adjustments and reconciling items made to "Net income (loss)" and "Diluted earnings (loss) per share" between comparable and GAAP results. See "Non-GAAP Measurements and items affecting comparability" below for descriptions of items excluded on a comparable basis, including descriptions of how these items affect the results of reportable segments.

  Net Income
(loss)
Diluted earnings
(loss) per share
[2]
(in millions, except per share amounts)   2012     2011     2012     2011
Reported results (GAAP) $ (67)   $ (29)   $ (1.45)   $ (0.63)
Danone JV investment impairment   28     -     0.60     -
Restructuring, net of tax   12     -     0.25     -
Headquarters relocation, net of tax   4     -     0.09     -
Incremental non-cash interest expense   2     2     0.05     0.05
Recovery of previously reserved Grower receivables   (1)     -     (0.01)     -
Refinancing costs   -     11     -     0.24
Comparable results (Non-GAAP) $ (22)   $ (16)   $ (0.47)   $ (0.35)

Columns may not total due to rounding.
[2]Shares used for diluted EPS calculation are on an as-reported basis.

Net Sales and Results:   Quarterly sales decreased 1 percent year-on-year to $714 million, primarily due to lower pricing in bananas and the decrease in the euro from an average of $1.42/euro for the third quarter of 2011 to an average of $1.25/euro for the third quarter of 2012.  Comparable net income for the quarter decreased due to lower revenue and higher sourcing and logistics costs, partially offset by manufacturing improvements in salads that reduced quality costs compared to 2011, and by lowering corporate and marketing expenses.

Cash, Debt and Liquidity:  Cash flow from operations was $0 million for the third quarter 2012 compared to cash used by operations of $29 million for the third quarter 2011. At September 30, 2012, cash and equivalents were $37 million.  Under its revolving credit facility, the company had $20 million in borrowings and had $109 million of availability.  As of September 30, 2012, the company was in compliance with the covenants of its credit facility and expects to remain in compliance for at least 12 months.

Bananas:  Net sales decreased 2 percent to $446 million.  For 2012, lower net sales were the result of lower base contract pricing in North America and lower U.S. dollar equivalent pricing in Europe because of lower average exchange rates.  Local pricing in Europe increased 8%.  Logistics costs were higher in 2012 than the comparable period in 2011 in part because of bunker fuel hedging gains that were accelerated into the third quarter of 2011 as a result of the reconfiguration of Chiquita's global shipping operations.  The savings from the shipping reconfiguration partially offset the higher fuel costs, net of hedging.  As a result, comparable operating loss was $2 million for the third quarter of 2012, compared to comparable operating income of $7 million for the third quarter of 2011.  

Salads and Healthy Snacks:  Net sales remained consistent year-on-year at approximately $240 million as foodservice and healthy snack sales offset lower volumes of retail value-added salads.  Comparable operating income was $1 million for the third quarter of 2012, versus a $3 million loss in 2011.

OUTLOOK

There are many trends that, if they continue, should benefit Chiquita for the balance of 2012 and into 2013.

  • There are opportunities to increase volumes in bananas and salads.  Recent banana contract wins will result in high single digit percentage volume growth in bananas in North America in 2013 and some of that volume has already started benefiting results in the fourth quarter.  In addition, the company will meaningfully expand its retail salad volume with private label contract volume starting early 2013.  

  • The tightening of banana supply out of Latin America is likely to continue and should support pricing as demand in the markets appears to be balanced with supply. 

  • The financial benefits of our restructuring will be fully realized in 2013.  The annual savings are expected to be at least $60 million, some of which will be offset by increasing costs in our core businesses.  Much of the restructuring is complete, and, as such, in the fourth quarter Chiquita expects to recognize at least $8 million of savings from these activities. 

  • The consolidation of the Midwest facilities near Chicago will be completed and the company will begin to see operating cost savings from this project toward the end of 2013. 

  • In 2012 the euro experienced volatility and significant weakness, which depressed our European results.  The euro has strengthened and at these levels will benefit 2013 results. 

Chiquita will continue to face difficult year over year comparisons in the fourth quarter because of lower euro exchange rates and higher fuel costs, net of hedging.  We expect banana volume in North America and Europe to end the year relatively flat, and salad volumes to be down 5% as compared to 2011 levels for the full year.  

These expectations do not include any unforeseen weather, event risks or major currency fluctuations.

Management's estimates of certain financial items are as follows:

(in $ millions) FY 2012
Estimate
  Q3 2012
Actual
  Q2 2012
Actual
    Q1 2012
Actual
Capital Expenditures 55-65   13   11   12
Depreciation & Amortization     60-65   16   15   16
Gross Interest Expense [1] 45-50   12   10   11
Net Interest Expense [1] 40-45   12   9   10

 [1] Interest expense includes the impact of accounting standards that add non-cash interest expense of $2 million each quarter for a total of $10 million for the full year.

Original source: Chiquita Brands International