Global fruit and vegetable distributor Fresh Del Monte Produce has reported financial gains for the first quarter of 2005, with a 17% sales increase and overall profit of US$117m. While rising global banana prices have driven earnings in this quarter, the good times may not last: underlying costs are also on the up, with high raw material prices likely to impact sales later in the year.
Fresh Del Monte started fiscal 2005 with a boost to sales after a poor end to 2004. The growth was largely due to firmer pricing in bananas and expansion in the packaged fresh-cut produce business, yet regardless of the overall increase in profit, the company’s sales fell short of forecasts. With operating costs rising, the rest of 2005 may prove to be more of a challenge.
Mohammad Abu-Ghazaleh, CEO of Fresh Del Monte, was satisfied with the company’s performance, even though sales fell short of analysts’ expectations by around $20m. He placed emphasis on the development of the prepared food sector in Europe and remains optimistic about continued growth and gaining new customers.
In particular, the banana business had a good quarter. Sales rose 3% on a 19% price increase, which saw Q1 gross profit more than double as Fresh Del Monte reaffirmed its strength in the fresh fruit industry.
The shareholders may be rubbing their hands with glee at this early stage, as, excluding an asset impairment charge, the company earned $1.04 per share during the quarter, up from $0.81 in the first quarter of 2004. However, forecasts for earnings per diluted share this year have not been increased above $2.40, highlighting concerns relating to costs and the effect on future profits.
Emphasis from governments regarding healthy eating may be working in the company’s favour, but the growth of the organic market and weather issues in Central America add to the challenges that the company is facing. Having had such a strong start to the year, morale is likely to be high, but with the increased costs associated with containerboard, fuel, and fruit procurement, Fresh Del Monte is in for a tougher time as it aims to build on the gains of the first quarter.
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