Chiquitas European banana business maintained higher seasonal prices

Chiquita's European banana business maintained higher seasonal prices

Chiquita Brands International narrowed its net losses in the third quarter but warned of challenging conditions ahead.

In the three months to the end of September, Chiquita booked a net loss off US$18m. This compared to a loss of $67m a year earlier.

Operating profit amounted to $1m compared to an operating loss of $66m in the prior year period.

"Our European banana business maintained higher seasonal prices while optimizing a balanced supply situation that extended well into the third quarter," said CEO Ed Lonergan. "In our salad business, we grew volume and market share for the second consecutive quarter."

Sales in the period reached $723m from $714m last year.

Looking ahead, however, the company said it is facing excess banana supplies in Europe and unfavourable growing conditions for salads, as well as the challenge of consolidating one of its plants in the Midwest.

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Chiquita Brands International, Inc : Chiquita Reports Third Quarter 2013 Results

CHIQUITA REPORTS THIRD QUARTER 2013 RESULTS

  • GAAP net loss of $18 million compared to GAAP net loss of $67 million for the third quarter of 2012
  • Adjusted EBITDA[1] of $18 million compared to an adjusted EBITDA loss of $1 million for the third quarter of 2012

CHARLOTTE - November 7, 2013 - Chiquita Brands International, Inc. (NYSE: CQB) today released financial and operating results for the third quarter of 2013.  The company reported GAAP net loss of $18 million for the period compared to GAAP net loss of $67 million for the third quarter of 2012.  GAAP operating income for the third quarter of 2013 was $1 million compared to a loss of $66 million in the third quarter of 2012.  The company also reported comparable operating income[1] of $2 million for the third quarter of 2013 compared to a loss of $17 million for the same period of 2012.

"We remain confident in our 'return to the core' strategy, and our third quarter results reflect continued progress toward our long-term goals," said Ed Lonergan, Chiquita's president and chief executive officer.  "We experienced volume and share growth in our North American banana business as our commitment to quality, service and innovation has been rewarded.  Our European banana business maintained higher seasonal prices while optimizing a balanced supply situation that extended well into the third quarter.  In our salad business, we grew volume and market share for the second consecutive quarter.  However, we continued to face certain headwinds with raw product costs and our Midwest plant consolidation." 

Lonergan continued, "The strategic changes Chiquita has made over the past year will enable the company to better withstand the market conditions that we will face for the balance of the year.  We currently see an excess banana supply situation that has already impacted weekly market pricing in Europe.  In addition, the salad industry is facing unfavorable growing conditions, which will impact costs and yields in our agricultural operations.  We remain focused on execution and while these headwinds are expected to negatively impact our fourth quarter and full year results, we believe we remain on target to achieve our long-term operating margin objectives within our planned timeframe."

[1]Amounts exclude certain items described below under "Non-GAAP Measurements and Items Affecting Comparability."

2013 THIRD QUARTER SUMMARY

The following table shows adjustments and reconciling items made to "Operating income (loss)," a GAAP measure, to calculate "Comparable operating income" and "Adjusted EBITDA." 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.

(in millions) Quarter Ended September 30,   Nine Months Ended September 30,
  2013   2012   2013   2012
Operating income (loss) (U.S. GAAP) $ 1   $     (66)   $ 67   $ (49)
Unrealized foreign currency hedging (gain) loss[1]   2     -     -     -
Headquarters relocation   -     6     -     17
Restructuring   -     14     -     14
Exit activities   -     -     1     4
Shipping reconfiguration   -     -     -     6
Danone JV investment impairment   -     28     -     28
European Healthy Snacking goodwill impairment   -     2     -     2
Recovery of grower receivables   (1)     (1)     (1)     (1)
Comparable operating income (Non-GAAP)   2     (17)     67     20
Depreciation and amortization   16     16     48     46
Adjusted EBITDA (Non-GAAP) $ 18   $ (1)   $ 115   $ 67

Columns may not total due to rounding.
[1] Unrealized foreign currency hedging gain is included in "Net sales" under U.S. GAAP

Bananas:  Comparable net sales increased 3 percent to $458 million primarily due to higher local pricing in Europe and higher banana sales volumes in North America, partially offset by lower volumes in Europe, resulting from the strategic decision to prioritize price over volume.  Operating income on a GAAP basis was $18 million for the quarter compared to a loss of $2 million for the third quarter of 2012 as a result of increased sales and lower logistics costs. Comparable operating income increased to $20 million in the third quarter of 2013 from a loss of $2 million in the same period of 2012.

Salads and Healthy Snacks:  Net sales remained consistent year-on-year at $239 million due to higher volume sales of retail value-added salads offset by lower processed fruit ingredient sales and the exit of a European healthy snacking business at the end of the second quarter 2013.  Operating loss on a GAAP basis was $5 million for the quarter compared to a loss of $27 million for the third quarter of 2012.  Comparable operating loss was $5 million for the third quarter of 2013 compared to $1 million income in the same period of 2012.  Higher net sales of retail value-added salads were offset by transition and start-up costs related to the Midwest plant consolidation and increased raw product costs caused by adverse growing conditions.

Selling, general and administrative (SG&A):  SG&A decreased 13 percent to $61 million in the third quarter of 2013 as a result of the restructuring initiatives announced in August 2012 and the timing of marketing expenditures, despite increases in performance-based incentive compensation accruals due to progress towards achieving certain financial objectives. 

Cash, debt and liquidity:  Cash flow from operations was $29 million for the third quarter of 2013 compared to $0 million for the third quarter of 2012.  At September 30, 2013, cash and equivalents were $72 million, and the company had $88 million of availability under its ABL facility. 

OUTLOOK

The company remains focused on its "return to the core" strategy and on the fundamentals of operating a branded commodity produce business with excellence.  The recent restructuring and efficiency initiatives have improved results and should continue to do so in the fourth quarter, although there remain significant risks, including:

  • The excess supply of bananas in core markets is expected to remain through the end of the year before returning to balance in the first quarter of 2014
  • The company continues to implement a substantial change process with the consolidation of its Midwest salad plants
  • Raw salad product costs are expected to remain unfavorable as weather continues to impact harvest yield, quality, and availability

Key elements of the company's plans should position it to remain on track to achieve its long term target operating margins.  These elements include:

  • Disciplined contract renewals and customer acquisitions, with continued benefits from customer acquisition and retention in North America and focus on prioritizing price over volume in Europe
  • An accelerated pace of core innovation in the salads business in 2014
  • Elimination of the transition costs related to the 2013 consolidation of the company's Midwest salad plants
  • Ongoing focus on owned farm and manufacturing plant productivity enhancements
  • Continued discipline in SG&A expenditures

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

Original source: Chiquita Brands International