Chiquita Brands International looks set to make some major changes to its European operations after its third-quarter results were driven down by weakness in the region.
Speaking as the US produce giant published its latest quarterly figures yesterday (2 November), president and CEO Fernando Aguirre described Europe as one of the company’s “most challenging operating environments”.
Over the quarter, Chiquita saw banana supplies to Europe from Latin America tighten, while shipments from subsidised EU and ACP sources increased.
CFO Mike Sims said Chiquita was “disappointed” to see exports from the subsidised EU-ACP growing regions grow “at levels exceeding typical demands observed in their traditional import market”.
In response to the challenging market conditions, Chiquita is planning the “transformation” of its European operations. Earlier this month, the company appointed Brian Kocher as president of its European and Middle Eastern operations from the start of January.
Attributing the transformation of Chiquita’s banana and salad businesses in the US to Kocher, Aguirre said: “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 maximise our premium brand position in Europe.”
Describing the need for the management changes, Aguirre said that while the issues with the European division are structural, “any time you need to have a significant change in your business, I’m a believer that you have got to have a leadership change.”
Aguirre said when Chiquita changed its leadership in North America it “worked very well” and created a “significant number of other shifts and strategy and execution of our strategy that allowed us to change the structural aspects of the business”.
However, Aguirre remained vague on what the details of these structural changes might be.
Largely as a result of problems in Europe, Chiquita has cut its full-year target from US$80-90m to $50-60m.
The company also faced currency issues, with the euro continuing to trade significantly lower than in the same period of last year, averaging $1.28 compared to $1.42 in 2009, meaning that net pricing on a US dollar basis was 5.4% lower than last year.
In the US, Chiquita struggled with lower salad volumes as consumers moved towards their private label. Aguirre insisted that Chiquita’s Fresh Express salads could “generate stronger profitability for our customers” versus own label.
Defending Chiquita’s decision not to create private-label products for the retailers it services, Aguirre said: “For those manufacturers who have decided to start producing private label, they’re now in a very, very tough situation because what prevents the people who are now doing private label to ask for the manufacturers to make even more private label for them and to exchange the branded business for the private label business.”
Aguirre painted a bleak picture of the cuts that manufacturers of private labels need to make. He said that to be a private label manufacturer, you have to essentially go down to no support, and take any inessential costs out of the structure to make any money.
However, Chiquita expects pressure from private label to ease. Additionally, the company has high expectations for its Fresh Rinse produce wash technology, launched last month, that Aguirre said “improves food safety and quality”.
Speaking about the potential impact of the new technology, Aguirre said: “I do believe that will be a critical piece of our plan to start regaining some of our volume and some of the shares that we’ve lost to private label.”
Despite posting a loss for the third quarter, Aguirre said he remains “optimistic” about Chiquita’s prospects. He added that the company expects 2010 to be the third profitable year in a row for the company, despite the lowered expectations.
The market seemed to agree with Aguirre’s assessment, with shares in the company up 1.23% to $12.29 at 10:55ET.