Dole Food Co. expects an excess supply of bananas in the second half of the year to put pressure on costs.
The US produce giant saw earnings fall in the six months to 15 June due in part to lower profits from its North American bananas business. EBIT from its fresh fruit business dropped from $98.9m to $62.8m.
However, president and COO Michael Carter told analysts on the firm’s earnings call the division had in fact performed “better than expected” principally due to lower-than-expected costs.
BB&T Capital Markets analyst Brett Hundley questioned whether the view of “tighter-than-expected” banana supplies across Latin America was more improved heading into the North America contracting season for 2014.
“In the first half of the year, while there has been ample supply of bananas in the various markets, there’s been an overall good balance of supply and demand,” Carter said. “But as we move forward to the second half of the year, we believe that there will be excess supply, and that excess supply will put pressure on our cost for the second half of the year.”
He added: “In Latin America, there’s an excess supply. Ecuador is a little bit short. Their volumes are decreasing overall, but they’re compensated or in some cases, more than compensated by increased volumes in Central America, primarily Guatemala.”
Hundley pointed to Dole’s banana prices in North America and questioned whether the firm’s pricing was in line with the price declines it was seeing in the region.
“We’ve seen an overall industry decline in the prices, we believe that we are – we know we are a premium-priced product, and we believe our prices are at the top of the market,” said CFO Keith Mitchell. “But the decline we have been seeing is certainly an industry issue in North America.”
In June, Dole revealed it had received an unsolicited proposal from chief executive David Murdock, who owns 40% of the business, to buy the rest of the company. Dole has designated a special committee composed of the board’s four independent directors.
Carter remained coy as to whether the company had received any other approaches since Murdock’s bid.
“As you know, soon after receiving the unsolicited proposal from Mr. Murdock, the company announced that it would be forming a special committee, which, of course, has been done. That special committee has its own process. And frankly, I would prefer any questions regarding Mr. Murdock’s proposal or the special committee to be addressed to the advisors of each.”