Chiquita Brands International (CQB)

• Article
• Discussion
• Edit
• History
• Bookmark

Bulls: Reasons To Buy Feeling Bullish? Be the first to explain why this would make a good investment See all Bears Reasons Bears: Reasons To Sell Chiquita predicts a rough road remains ahead - Analyst downgrade 0% agree Chiquita predicts a rough road remains ahead - Analyst downgrade Chiquita is blaming the loss on higher product costs – annual expenses jumped $60-65 million because of higher fuel prices, and the cost of buying bananas, lettuce and market fertilizer. Full-year expenses will now total $240-265 million. Company... read more View or Edit Reason 0 votes 0% agree Send the authors a comment or suggestion Be the first to make a suggestion See All Suggestions

Top Contributors Sok Be

Chiquita Brands International (NYSE:CQB)

Generating net sales of $840 million in 2008, Chiquita Brands Internation, Inc, (CQB) is a leading marketer and distributor of produce. Chiquita holds the No. 1 market share of bananas in the European Union and the No. 2 market share in North America. Under the brand name Fresh Express, Chiquita holds the No. 1 market share for packaged salads. ^[1]

Approximately one-third of the bananas are produced from company owned farms while the remaining bananas and other produce are bought from third-party suppliers from around the world. ^[2]

In August 2008, Chiquita announced that it had completed the sale of its wholly-owned German distribution business, Atlanta AG to UNIVEG Fruit and Vegetables BV, while creating a strategic agreement whereby Atlanta will be Chiquita's preferred supplier of banana ripening and distribution services in Germany, Austria and Denmark. ^[3]

Chiquita is expanding its global presence in emerging markets by entering a joint venture with Haitong Food Group in China to market and sell fresh packaged salads, fresh cut fruits and vegetables, and fresh chilled beverages. ^[4]

[edit] Business and Financial

CQB’s revenue comes from the sale of bananas, bagged salads, other produce and healthy snacks. In the third quarter of 2008 net sales rose 7% to $840 million. There was an operating loss of $5 million, compared to a loss of $7 million in the third quarter of 2007. Improvements in the operating loss are due to a higher pricing for bananas in North America, favorable exchange rates for the Euro, savings from business restructuring, offset by increases in industry and product supply costs and lower sales in salads. ^[5]

[6]

[edit] Business Segments

Chiquita divides it sales into three segments: bananas, packaged salads and other healthy foods, and other produce.

^[7]

[edit] Bananas

Under the brand name “Chiquita”, Chiquita sources, distributes and markets bananas, with net sales of $2.0 billion in 2007, $1.9 billion in 2006 and $2.0 billion in 2005. Banana sales were approximately 43% of Chiquita’s consolidated net sales in 2007 and 2006 and 50% in 2005. Between 2005 and 2007 approximately 30% of sales were in North America and 70% of banana sales were in Europe and other international markets. The Middle East and the Far East, the other international markets, are both served through a joint venture that sources its bananas from the Philippines. ^[8]

[edit] Salads and Healthy Snacks

Fresh Express’ 47% and 45% retail market share during 2007 and 2006, respectively, is number one in the retail value-added salad category in the U.S. Net sales of the Salads and Healthy Snacks segment were approximately $1.3 billion, $1.2 billion, and $590 million for the years ended December 31, 2007, 2006 and 2005, respectively. ^[9] The Salads and Healthy Snacks segment includes packaged salads sold under the Fresh Express and other labels, fresh vegetable and fruit ingredients used in foodservice, healthy snacks, and processed fruit ingredient products. The company ships an average of 15 million fresh, ready-to-eat Fresh Express-branded salad bags to grocers across the United States every week. ^[10] The company distributes approximately 400 different Fresh Express branded products nationwide to food retailers as well as foodservice distributors and operators and quick-service restaurants. The increase in revenue between 2005 and 2006 was due to the full year impact of Chiquita owning the Fresh Express business. The Fresh Express acquisition has diversified the company’s business, accelerated revenue growth in value-added products and provided a more balanced mix of sales between Europe and North America, which makes the company less susceptible to risks unique to Europe, such as sourcing preferences in the European Union under the banana import regime and foreign exchange risk. ^[11] The company says the acquisition of Verdelli Farms, a regional processor of the line of packaged salads, vegetables and fruit snack in the east coast region of the US will benefit the Salads and Healthy Snacks segment by expanding its presence in the northeast where the Fresh Express brand is currently under-represented. The increased presence in the Northeast will improve distribution and logistics efficiency. ^[12]

[edit] Other Produce

Net sales of the Other Produce segment were approximately $1.4 billion in 2007, 2006 and 2005. The Other Produce segment includes fresh fruit and vegetables other than bananas in Europe, North America and the Far East. The major items sold are grapes, pineapples, melons, stonefruit, apples, kiwi and tomatoes. ^[13]

In August 2008, Chiquita sold their German subsidiary Atlanta AG to UNIVEG, proceeds of the sale went to repurchasing $91 million in senior notes. Atlanta will continue to serve as Chiquita's preferred supplier of banana ripening and distribution services in Germany and Austria. ^[14]

[edit] Trends and Forces

[edit] EU banana import tariffs continue its negative impact on European banana sales.

In January 2006, the European Commission eliminated the quota and licensing arrangement to the import of Latin American bananas and imposed a significantly higher tariff on Latin American bananas. At the same time, it maintained a tariff preference for bananas from African, Caribbean and Pacific (“ACP”) sources by exempting the first 775,000 metric tons of ACP bananas from any tariffs. As of January 1, 2008, that tariff exemption applies to all ACP bananas. ^[15]

• Tariffs Tariff increases resulted in approximately $115 million of higher tariff costs in 2006 and 2007 compared to 2005. Elimination of quotas increased in the volume of bananas sold into the EU and caused banana prices to decrease overall. The average banana prices in Chiquita’s core European markets decreased by 11% to $110 million in 2006 compared to 2005; however, in 2007, local prices increased by 2% or $18 million compared to 2006. ^[16]

• Price Chiquita and its competitors have not been able to pass on costs to the consumer. While Chiquita can still demand a premium price for its bananas, premium pricing is not guaranteed because of the potential for significant fluctuations in volume and pricing as a result of variations in supply and demand, competitive market dynamics, the weekly nature of pricing that is characteristic of sales to most retailers and wholesalers in this market. ^[17]

Despite a WTO holding that the EU’s banana importing practices violates international trade rules there can be no assurance that any of these challenges will result in changes to the EU regime, or that any resulting changes will favorably impact the companies earnings. ^[18]

[edit] Unpredictable weather conditions, natural disasters, crop disease, pests and other natural conditions pose significant costs and losses.

Like all fresh produce traders, Chiquita’s core business is vulnerable to weather conditions, crop disease, pests, and other natural conditions. The factors can lower sales volume, increase expenditures for replanting and replacing damaged crops, and limit availability to supply customers. ^[19]

Insurance can cover certain weather-related losses and the company can attempt to pass on incremental costs to customers through contract price increases or temporary price surcharges; however, there is no assurance that they will be able to do so in the future. ^[20]

[edit] Regulation in areas of food safety and the environment increase costs and affect sales

New regulations in areas of food safety and the environment will increase costs in complying. Potential changes by regulators can require operational modifications and capital improvements. There will also be costs incurred through penalties and other fines if violations occur. ^[21]

Food safety issues that implicate consumer confidence in safety and quality of produce and ingredients will adversely affect the sales of products. For example, the safety of fresh spinach in the United States adversely impacted the packaged salad operations starting in the third quarter of 2006 and throughout 2007, even though Chiquita products were not implicated in these issues. ^[22]

[edit] Competition

[edit] Bananas

Bananas are distributed and marketed internationally in a highly competitive environment. Although smaller companies, including growers’ cooperatives, are a competitive factor, Chiquita’s primary competitors are a limited number of other international banana importers and exporters, principally Dole Food Company, Inc., Fresh Del Monte Produce, Inc. and Fyffes plc.

• Dole Food - Privately owned, Dole Foods is the world's largest producer of fresh fruits and vegetables. It is the No.1 seller bananas, iceberg lettuce, celery, cauliflower, and packaged fruit products in North America.^[23]

• Fresh Del Monte Produce - No longer related to Del Monte Foods, Fresh Del Monte Produce holds the license to use the name Del Monte on the fresh fruits and vegetables that it grows, transports, and markets worldwide. Del Monte Gold Extra Sweet pineapples holding a 35% market share in pineapples. The firm has 12% of the world market share for bananas.^[24]

• Fyffes - Fyffes is a major European importer and distributor of fresh fruits, Fyffes is best known for its bananas. It was the first company to brand bananas, using the “Blue Label”. The company markets its fruit, which also includes Fyffes Gold Pineapples and melons, under the Fyffes, Turbana, and Nolem brands.^[25]

^[26]

[edit] Bagged Salads

Fresh Express competes with Dole Food Company, Ready Pac Produce, and Earthbound Farms in the value-added salad and packaged vegetable market. There are also a growing number of processed food and other food and produce sellers who could enter the value-added salads category and other healthy snack markets. Approximately 30% of the Salads and Healthy Snacks segment net sales are to chain and quick service restaurants, which are characterized by a high volume of sales, but with profit margins that are lower than for retail customers. The foodservice competition is predominately national, regional and local processors.

^[27]

[edit] References

1. ↑ [ http://www.secinfo.com/d14D5a.t19Y1.htm#1stPage CQB 2008 10-K Item 1 page 3]
2. ↑ [ http://www.secinfo.com/d14D5a.t19Y1.htm#1stPage CQB 2008 10-K Item 1 page1]
3. ↑ [1]
4. ↑ [2]
5. ↑ [ http://seekingalpha.com/article/106266-chiquita-brands-international-inc-q3-2008-earnings-call-transcript]
6. ↑ [ http://www.secinfo.com/d14D5a.t19Y1.htm#1stPage CQB 2008 10-K Item 1 page 3]
7. ↑ [ http://www.secinfo.com/d14D5a.t19Y1.htm#1stPage CQB 2008 10-K Item 1 page 3]
8. ↑ [ http://www.secinfo.com/d14D5a.t19Y1.htm#1stPage CQB 2008 10-K Item 1 page 3]
9. ↑ [ http://www.secinfo.com/d14D5a.t19Y1.htm#1stPage CQB 2008 10-K Item 1 page 3]
10. ↑ [ http://www.secinfo.com/d14D5a.t19Y1.htm#1stPage CQB 2008 10-K Item 1 page 3]
11. ↑ [ http://www.secinfo.com/d14D5a.t19Y1.htm#1stPage CQB 2008 10-K Item 1 page 3]
12. ↑ [ http://www.secinfo.com/d14D5a.t19Y1.htm#1stPage CQB 2008 10-K Item 1]
13. ↑ [ http://www.secinfo.com/d14D5a.t19Y1.htm#1stPage CQB 2008 10-K Item 1 page 3]
14. ↑ [ http://seekingalpha.com/article/106266-chiquita-brands-international-inc-q3-2008-earnings-call-transcript]
15. ↑ [ http://www.secinfo.com/d14D5a.t19Y1.htm#2acp ]
16. ↑ [ http://www.secinfo.com/d14D5a.t19Y1.htm#2acp ]
17. ↑ [ http://www.secinfo.com/d14D5a.t19Y1.htm#2acp ]
18. ↑ [ http://www.secinfo.com/d14D5a.t19Y1.htm#2acp ]
19. ↑ [ http://www.secinfo.com/d14D5a.t19Y1.htm#2acp ]
20. ↑ [ http://www.secinfo.com/d14D5a.t19Y1.htm#2acp ]
21. ↑ [ http://www.secinfo.com/d14D5a.t19Y1.htm#2acp ]
22. ↑ [3]
23. ↑ [4]
24. ↑ [5]
25. ↑ [6]
26. ↑ [7]
27. ↑ [8]